We Like These Underlying Return On Capital Trends At Brem Holding Berhad (KLSE:BREM)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. With that in mind, we've noticed some promising trends at Brem Holding Berhad (KLSE:BREM) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Brem Holding Berhad is:

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

0.037 = RM28m ÷ (RM829m - RM86m) (Based on the trailing twelve months to December 2020).

Thus, Brem Holding Berhad has an ROCE of 3.7%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 5.9%.

View our latest analysis for Brem Holding 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 want to delve into the historical earnings, revenue and cash flow of Brem Holding Berhad, check out these free graphs here.

So How Is Brem Holding Berhad's ROCE Trending?

While there are companies with higher returns on capital out there, we still find the trend at Brem Holding Berhad promising. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 908% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

What We Can Learn From Brem Holding Berhad's ROCE

To sum it up, Brem Holding Berhad is collecting higher returns from the same amount of capital, and that's impressive. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, Brem Holding Berhad does come with some risks, and we've found 2 warning signs that you should be aware of.

While Brem Holding 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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