CME Group Berhad's (KLSE:CME) Returns On Capital Are Heading Higher

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Speaking of which, we noticed some great changes in CME Group Berhad's (KLSE:CME) returns on capital, so let's have a look.

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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. Analysts use this formula to calculate it for CME Group Berhad:

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

0.02 = RM1.1m ÷ (RM109m - RM52m) (Based on the trailing twelve months to March 2025).

So, CME Group Berhad has an ROCE of 2.0%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 8.1%.

Check out our latest analysis for CME Group Berhad

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

What Does the ROCE Trend For CME Group Berhad Tell Us?

CME Group Berhad has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 2.0% on its capital. In addition to that, CME Group Berhad is employing 35% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a separate but related note, it's important to know that CME Group Berhad has a current liabilities to total assets ratio of 48%, which we'd consider pretty high. 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.

What We Can Learn From CME Group Berhad's ROCE

In summary, it's great to see that CME Group Berhad has managed to break into profitability and is continuing to reinvest in its business. Although the company may be facing some issues elsewhere since the stock has plunged 75% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

If you'd like to know more about CME Group Berhad, we've spotted 5 warning signs, and 3 of them are significant.

While CME Group 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.