Sarawak Consolidated Industries Berhad (KLSE:SCIB) Shareholders Will Want The ROCE Trajectory To Continue

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. With that in mind, we've noticed some promising trends at Sarawak Consolidated Industries Berhad (KLSE:SCIB) so let's look a bit deeper.

Understanding 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. To calculate this metric for Sarawak Consolidated Industries Berhad, this is the formula:

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

0.044 = RM8.3m ÷ (RM290m - RM99m) (Based on the trailing twelve months to March 2024).

So, Sarawak Consolidated Industries Berhad has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Building industry average of 7.1%.

View our latest analysis for Sarawak Consolidated Industries Berhad

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

How Are Returns Trending?

We're delighted to see that Sarawak Consolidated Industries Berhad is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 4.4% on its capital. And unsurprisingly, like most companies trying to break into the black, Sarawak Consolidated Industries Berhad is utilizing 190% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

What We Can Learn From Sarawak Consolidated Industries Berhad's ROCE

Long story short, we're delighted to see that Sarawak Consolidated Industries Berhad's reinvestment activities have paid off and the company is now profitable. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 2.2% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a final note, we found 4 warning signs for Sarawak Consolidated Industries Berhad (2 are a bit concerning) you should be aware of.

While Sarawak Consolidated Industries Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.

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