Returns On Capital Are Showing Encouraging Signs At Fibon Berhad (KLSE:FIBON)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Fibon Berhad (KLSE:FIBON) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Fibon Berhad:

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

0.095 = RM5.5m ÷ (RM60m - RM1.7m) (Based on the trailing twelve months to February 2023).

So, Fibon Berhad has an ROCE of 9.5%. In absolute terms, that's a low return but it's around the Electrical industry average of 10%.

See 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 want to delve into the historical earnings, revenue and cash flow of Fibon Berhad, check out these free graphs here.

SWOT Analysis for Fibon Berhad

The Trend Of ROCE

The fact that Fibon Berhad is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 9.5% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Fibon Berhad is utilizing 25% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Key Takeaway

To the delight of most shareholders, Fibon Berhad has now broken into profitability. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know more about Fibon Berhad, we've spotted 3 warning signs, and 1 of them is significant.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.