Investors Will Want Lion Posim Berhad's (KLSE:LIONPSIM) Growth In ROCE To Persist

Simply Wall St
April 07, 2022
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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. 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 on that note, Lion Posim Berhad (KLSE:LIONPSIM) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Lion Posim Berhad, this is the formula:

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

0.0056 = RM4.1m ÷ (RM863m - RM126m) (Based on the trailing twelve months to December 2021).

Therefore, Lion Posim Berhad has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 5.6%.

Check out our latest analysis for Lion Posim Berhad

KLSE:LIONPSIM Return on Capital Employed April 7th 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for Lion Posim Berhad's ROCE against it's prior returns. If you're interested in investigating Lion Posim Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Lion Posim Berhad Tell Us?

We're delighted to see that Lion Posim Berhad is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.6% on its capital. And unsurprisingly, like most companies trying to break into the black, Lion Posim Berhad is utilizing 40% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Key Takeaway

Long story short, we're delighted to see that Lion Posim Berhad's reinvestment activities have paid off and the company is now profitable. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 3.5% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know more about Lion Posim Berhad, we've spotted 3 warning signs, and 1 of them is a bit unpleasant.

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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