We Like AYS Ventures Berhad's (KLSE:AYS) Returns And Here's How They're Trending

To find a multi-bagger stock, what are the underlying trends we should look for in a business? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at the ROCE trend of AYS Ventures Berhad (KLSE:AYS) we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for AYS Ventures Berhad, this is the formula:

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

0.29 = RM144m ÷ (RM1.1b - RM593m) (Based on the trailing twelve months to June 2022).

So, AYS Ventures Berhad has an ROCE of 29%. In absolute terms that's a great return and it's even better than the Trade Distributors industry average of 7.5%.

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

What Does the ROCE Trend For AYS Ventures Berhad Tell Us?

We like the trends that we're seeing from AYS Ventures Berhad. The data shows that returns on capital have increased substantially over the last five years to 29%. Basically the business is earning more per dollar of capital invested and in addition to that, 98% more capital is being employed now too. So we're very much inspired by what we're seeing at AYS Ventures Berhad thanks to its ability to profitably reinvest capital.

On a side note, AYS Ventures Berhad's current liabilities are still rather high at 55% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On AYS Ventures Berhad's ROCE

All in all, it's terrific to see that AYS Ventures Berhad is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 5.3% 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.

AYS Ventures Berhad does come with some risks though, we found 5 warning signs in our investment analysis, and 2 of those don't sit too well with us...

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.