Rimbaco Group Global (HKG:1953) Will Want To Turn Around Its Return Trends

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Rimbaco Group Global (HKG:1953) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Rimbaco Group Global is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.093 = RM16m ÷ (RM256m - RM86m) (Based on the trailing twelve months to April 2021).

Thus, Rimbaco Group Global has an ROCE of 9.3%. On its own, that's a low figure but it's around the 8.1% average generated by the Construction industry.

Check out our latest analysis for Rimbaco Group Global

Historical performance is a great place to start when researching a stock so above you can see the gauge for Rimbaco Group Global's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Rimbaco Group Global, check out these free graphs here.

What Does the ROCE Trend For Rimbaco Group Global Tell Us?

In terms of Rimbaco Group Global's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 34% over the last three years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

On a related note, Rimbaco Group Global has decreased its current liabilities to 34% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

The Key Takeaway

To conclude, we've found that Rimbaco Group Global is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 4.0% over the last year, which potentially indicates that investors are accounting for this going forward. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

If you'd like to know more about Rimbaco Group Global, we've spotted 4 warning signs, and 2 of them are a bit concerning.

While Rimbaco Group Global may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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