AbleGroup Berhad's (KLSE:ABLEGRP) Returns On Capital Are Heading Higher

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, AbleGroup Berhad (KLSE:ABLEGRP) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for AbleGroup Berhad:

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

0.0041 = RM181k ÷ (RM45m - RM1.5m) (Based on the trailing twelve months to June 2024).

So, AbleGroup Berhad has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Building industry average of 5.8%.

See our latest analysis for AbleGroup Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how AbleGroup Berhad has performed in the past in other metrics, you can view this free graph of AbleGroup Berhad's past earnings, revenue and cash flow.

So How Is AbleGroup Berhad's ROCE Trending?

AbleGroup Berhad has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 0.4% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

Our Take On AbleGroup Berhad's ROCE

To sum it up, AbleGroup Berhad is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 54% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if AbleGroup Berhad can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 4 warning signs we've spotted with AbleGroup Berhad (including 1 which is a bit concerning) .

While AbleGroup Berhad 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.

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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.