Fibon Berhad (KLSE:FIBON) Is Experiencing Growth In Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Fibon Berhad's (KLSE:FIBON) returns on capital, so let's have a look.

What Is 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 Fibon Berhad, this is the formula:

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

0.07 = RM3.9m ÷ (RM58m - RM2.0m) (Based on the trailing twelve months to August 2022).

Therefore, Fibon Berhad has an ROCE of 7.0%. Ultimately, that's a low return and it under-performs the Electrical industry average of 9.1%.

Check out our latest analysis for Fibon Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Fibon Berhad's ROCE against it's prior returns. If you'd like to look at how Fibon 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 Fibon Berhad Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 7.0%. The amount of capital employed has increased too, by 20%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Fibon Berhad's ROCE

All in all, it's terrific to see that Fibon Berhad is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 18% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing Fibon Berhad we've found 4 warning signs (1 is potentially serious!) that you should be aware of before investing here.

While Fibon Berhad 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.