Is Bina Darulaman Berhad (KLSE:BDB) A Future Multi-bagger?

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Bina Darulaman Berhad (KLSE:BDB) 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 Bina Darulaman Berhad, this is the formula:

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

0.041 = RM20m ÷ (RM719m - RM216m) (Based on the trailing twelve months to September 2020).

Thus, Bina Darulaman Berhad has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Construction industry average of 5.2%.

See our latest analysis for Bina Darulaman Berhad

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

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The figures show that over the last five years, returns on capital have grown by 67%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Bina Darulaman Berhad appears to been achieving more with less, since the business is using 33% less capital to run its operation. Bina Darulaman Berhad may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 30% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Bottom Line On Bina Darulaman Berhad's ROCE

In summary, it's great to see that Bina Darulaman Berhad has been able to turn things around and earn higher returns on lower amounts of capital. And since the stock has fallen 36% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing: We've identified 3 warning signs with Bina Darulaman Berhad (at least 1 which is a bit concerning) , and understanding them would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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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