Stock Analysis

HLT Global Berhad (KLSE:HLT) Is Very Good At Capital Allocation

KLSE:HLT
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What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Speaking of which, we noticed some great changes in HLT Global Berhad's (KLSE:HLT) returns on capital, so let's have a look.

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

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

0.48 = RM88m ÷ (RM254m - RM70m) (Based on the trailing twelve months to September 2021).

So, HLT Global Berhad has an ROCE of 48%. In absolute terms that's a great return and it's even better than the Machinery industry average of 11%.

See our latest analysis for HLT Global Berhad

roce
KLSE:HLT Return on Capital Employed December 13th 2021

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're interested in investigating HLT Global Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

We like the trends that we're seeing from HLT Global Berhad. Over the last five years, returns on capital employed have risen substantially to 48%. The amount of capital employed has increased too, by 422%. So we're very much inspired by what we're seeing at HLT Global Berhad thanks to its ability to profitably reinvest capital.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 27%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From HLT Global Berhad's ROCE

All in all, it's terrific to see that HLT Global Berhad is reaping the rewards from prior investments and is growing its capital base. And a remarkable 141% total return over the last three years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if HLT Global Berhad can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 4 warning signs we've spotted with HLT Global Berhad (including 1 which can't be ignored) .

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.

Valuation is complex, but we're here to simplify it.

Discover if HLT Global Berhad might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

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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.