The Return Trends At APB Resources Berhad (KLSE:APB) Look Promising

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in APB Resources Berhad's (KLSE:APB) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.076 = RM12m ÷ (RM169m - RM13m) (Based on the trailing twelve months to December 2022).

So, APB Resources Berhad has an ROCE of 7.6%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 14%.

Check out our latest analysis for APB Resources Berhad

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

The Trend Of ROCE

Shareholders will be relieved that APB Resources Berhad has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 7.6% on its capital. 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. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

Our Take 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. And with a respectable 71% 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 APB Resources Berhad can keep these trends up, it could have a bright future ahead.

APB Resources Berhad does have some risks, we noticed 2 warning signs (and 1 which is significant) we think you should know about.

While APB Resources Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.