Returns Are Gaining Momentum At Naim Holdings Berhad (KLSE:NAIM)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Naim Holdings Berhad's (KLSE:NAIM) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Naim Holdings Berhad:

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

0.083 = RM122m ÷ (RM2.0b - RM527m) (Based on the trailing twelve months to March 2021).

So, Naim Holdings Berhad has an ROCE of 8.3%. On its own that's a low return, but compared to the average of 6.7% generated by the Construction industry, it's much better.

View our latest analysis for Naim Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Naim Holdings Berhad's ROCE against it's prior returns. If you'd like to look at how Naim Holdings Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Naim Holdings Berhad's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 1,365% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line On Naim Holdings Berhad's ROCE

As discussed above, Naim Holdings Berhad appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Given the stock has declined 54% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we've found 2 warning signs for Naim Holdings Berhad that we think you should be aware of.

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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