The Return Trends At Protasco Berhad (KLSE:PRTASCO) Look Promising

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Protasco Berhad's (KLSE:PRTASCO) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for Protasco Berhad:

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

0.19 = RM79m ÷ (RM1.0b - RM596m) (Based on the trailing twelve months to September 2024).

Therefore, Protasco Berhad has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 11% it's much better.

View our latest analysis for Protasco Berhad

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

So How Is Protasco Berhad's ROCE Trending?

We're pretty happy with how the ROCE has been trending at Protasco Berhad. The figures show that over the last five years, returns on capital have grown by 2,128%. The company is now earning RM0.2 per dollar of capital employed. In regards to capital employed, Protasco Berhad appears to been achieving more with less, since the business is using 30% less capital to run its operation. Protasco Berhad may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 58% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

Our Take On Protasco Berhad's ROCE

In summary, it's great to see that Protasco Berhad has been able to turn things around and earn higher returns on lower amounts of capital. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.

One final note, you should learn about the 2 warning signs we've spotted with Protasco Berhad (including 1 which is significant) .

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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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.