Fajarbaru Builder Group Bhd (KLSE:FAJAR) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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 on that note, Fajarbaru Builder Group Bhd (KLSE:FAJAR) looks quite promising in regards to its trends of return on capital.

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 Fajarbaru Builder Group Bhd:

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

0.18 = RM83m ÷ (RM677m - RM204m) (Based on the trailing twelve months to September 2024).

So, Fajarbaru Builder Group Bhd has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 11% generated by the Construction industry.

View our latest analysis for Fajarbaru Builder Group Bhd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Fajarbaru Builder Group Bhd'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 Fajarbaru Builder Group Bhd.

How Are Returns Trending?

The trends we've noticed at Fajarbaru Builder Group Bhd are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 48% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Fajarbaru Builder Group Bhd's ROCE

To sum it up, Fajarbaru Builder Group Bhd has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 79% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 4 warning signs for Fajarbaru Builder Group Bhd (2 shouldn't be ignored) you should be aware of.

While Fajarbaru Builder Group Bhd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.