APB Resources Berhad (KLSE:APB) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 when we looked at APB Resources Berhad (KLSE:APB) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 APB Resources Berhad, this is the formula:

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

0.03 = RM4.9m ÷ (RM176m - RM12m) (Based on the trailing twelve months to June 2021).

Thus, APB Resources Berhad has an ROCE of 3.0%. Ultimately, that's a low return and it under-performs the Machinery industry average of 11%.

View our latest analysis for APB Resources 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 APB Resources Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is APB Resources Berhad's ROCE Trending?

We're delighted to see that APB Resources Berhad is reaping rewards from its investments and has now broken into profitability. The company now earns 3.0% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by APB Resources Berhad has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

The Bottom Line On APB Resources Berhad's ROCE

To bring it all together, APB Resources Berhad has done well to increase the returns it's generating from its capital employed. Given the stock has declined 31% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing, we've spotted 1 warning sign facing APB Resources Berhad that you might find interesting.

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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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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