Here's What HLT Global Berhad's (KLSE:HLT) Strong Returns On Capital Mean

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So, when we ran our eye over HLT Global Berhad's (KLSE:HLT) trend of ROCE, we really liked what we saw.

Understanding 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. The formula for this calculation on HLT Global Berhad is:

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

0.39 = RM56m ÷ (RM241m - RM99m) (Based on the trailing twelve months to December 2020).

Thus, HLT Global Berhad has an ROCE of 39%. In absolute terms that's a great return and it's even better than the Machinery industry average of 9.1%.

Check out our latest analysis for HLT Global Berhad

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

How Are Returns Trending?

We'd be pretty happy with returns on capital like HLT Global Berhad. Over the past five years, ROCE has remained relatively flat at around 39% and the business has deployed 361% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If HLT Global Berhad can keep this up, we'd be very optimistic about its future.

On a separate but related note, it's important to know that HLT Global Berhad has a current liabilities to total assets ratio of 41%, 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.

The Bottom Line

HLT Global Berhad has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. On top of that, the stock has rewarded shareholders with a remarkable 363% return to those who've held over the last three years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

If you want to continue researching HLT Global Berhad, you might be interested to know about the 2 warning signs that our analysis has discovered.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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.
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