Will the Promising Trends At Muar Ban Lee Group Berhad (KLSE:MBL) Continue?

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Speaking of which, we noticed some great changes in Muar Ban Lee Group Berhad's (KLSE:MBL) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Muar Ban Lee Group Berhad:

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

0.13 = RM24m ÷ (RM247m - RM70m) (Based on the trailing twelve months to September 2020).

Therefore, Muar Ban Lee Group Berhad has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 10% generated by the Machinery industry.

Check out our latest analysis for Muar Ban Lee Group Berhad

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

The Trend Of ROCE

Muar Ban Lee Group Berhad is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 80% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 28% of the business, which is more than it was five years ago. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Key Takeaway

To sum it up, Muar Ban Lee Group Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 64% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to continue researching Muar Ban Lee Group Berhad, you might be interested to know about the 2 warning signs that our analysis has discovered.

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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