Returns At Sealink International Berhad (KLSE:SEALINK) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. 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. 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 Sealink International Berhad's (KLSE:SEALINK) returns on capital, so let's have a look.

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 Sealink International Berhad is:

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

0.011 = RM2.7m ÷ (RM327m - RM82m) (Based on the trailing twelve months to December 2023).

So, Sealink International Berhad has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 9.0%.

Check out our latest analysis for Sealink International Berhad

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

What The Trend Of ROCE Can Tell Us

We're delighted to see that Sealink International Berhad is reaping rewards from its investments and has now broken into profitability. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 1.1% on their capital employed. In regards to capital employed, Sealink International Berhad is using 45% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. This could potentially mean that the company is selling some of its assets.

Our Take On Sealink International Berhad's ROCE

From what we've seen above, Sealink International Berhad has managed to increase it's returns on capital all the while reducing it's capital base. And with a respectable 54% 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. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching Sealink International Berhad, you might be interested to know about the 2 warning signs that our analysis has discovered.

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.