Will ABM Fujiya Berhad's (KLSE:AFUJIYA) Growth In ROCE Persist?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at ABM Fujiya Berhad (KLSE:AFUJIYA) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for ABM Fujiya Berhad, this is the formula:

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

0.05 = RM8.8m ÷ (RM263m - RM89m) (Based on the trailing twelve months to September 2020).

So, ABM Fujiya Berhad has an ROCE of 5.0%. On its own, that's a low figure but it's around the 5.7% average generated by the Auto Components industry.

Check out our latest analysis for ABM Fujiya Berhad

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

The Trend Of ROCE

ABM Fujiya Berhad's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 29% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From ABM Fujiya Berhad's ROCE

As discussed above, ABM Fujiya Berhad appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Considering the stock has delivered 11% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know more about ABM Fujiya Berhad, we've spotted 3 warning signs, and 2 of them make us uncomfortable.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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