Returns On Capital Are Showing Encouraging Signs At Resintech Berhad (KLSE:RESINTC)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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, Resintech Berhad (KLSE:RESINTC) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Resintech Berhad is:

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

0.05 = RM9.3m ÷ (RM224m - RM35m) (Based on the trailing twelve months to March 2021).

Thus, Resintech Berhad has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 10%.

See our latest analysis for Resintech Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Resintech Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Resintech Berhad, check out these free graphs here.

What Can We Tell From Resintech Berhad's ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 5.0%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 36%. So we're very much inspired by what we're seeing at Resintech Berhad thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Resintech Berhad is reaping the rewards from prior investments and is growing its capital base. And with a respectable 71% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Resintech Berhad can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 4 warning signs we've spotted with Resintech Berhad (including 1 which is significant) .

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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