KKB Engineering Berhad (KLSE:KKB) Is Experiencing Growth In Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at KKB Engineering Berhad (KLSE:KKB) so let's look a bit deeper.

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. The formula for this calculation on KKB Engineering Berhad is:

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

0.098 = RM45m ÷ (RM610m - RM148m) (Based on the trailing twelve months to September 2023).

Therefore, KKB Engineering Berhad has an ROCE of 9.8%. In absolute terms, that's a low return, but it's much better than the Construction industry average of 6.4%.

View our latest analysis for KKB Engineering Berhad

Above you can see how the current ROCE for KKB Engineering Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is KKB Engineering Berhad's ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 9.8%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 47%. So we're very much inspired by what we're seeing at KKB Engineering Berhad thanks to its ability to profitably reinvest capital.

What We Can Learn From KKB Engineering Berhad's ROCE

To sum it up, KKB Engineering Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 103% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing, we've spotted 1 warning sign facing KKB Engineering Berhad that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.