Investors Will Want Pasukhas Group Berhad's (KLSE:PASUKGB) Growth In ROCE To Persist

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. So when we looked at Pasukhas Group Berhad (KLSE:PASUKGB) and its trend of ROCE, we really liked what we saw.

What Is 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. The formula for this calculation on Pasukhas Group Berhad is:

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

0.012 = RM2.2m ÷ (RM220m - RM44m) (Based on the trailing twelve months to December 2022).

Therefore, Pasukhas Group Berhad has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 8.9%.

See our latest analysis for Pasukhas Group Berhad

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

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 1.2%. The amount of capital employed has increased too, by 75%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 20%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Pasukhas Group Berhad has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Pasukhas Group Berhad's ROCE

To sum it up, Pasukhas Group Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Although the company may be facing some issues elsewhere since the stock has plunged 98% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

On a final note, we found 5 warning signs for Pasukhas Group Berhad (4 shouldn't be ignored) you should be aware of.

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.