Returns On Capital Are Showing Encouraging Signs At SKB Shutters Corporation Berhad (KLSE:SKBSHUT)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. 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 SKB Shutters Corporation Berhad's (KLSE:SKBSHUT) returns on capital, so let's have a look.

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. Analysts use this formula to calculate it for SKB Shutters Corporation Berhad:

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

0.14 = RM20m ÷ (RM193m - RM44m) (Based on the trailing twelve months to March 2023).

Therefore, SKB Shutters Corporation Berhad has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.4% generated by the Building industry.

See our latest analysis for SKB Shutters Corporation Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of SKB Shutters Corporation Berhad, check out these free graphs here.

What Can We Tell From SKB Shutters Corporation Berhad's ROCE Trend?

SKB Shutters Corporation Berhad's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 172% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On SKB Shutters Corporation Berhad's ROCE

In summary, we're delighted to see that SKB Shutters Corporation Berhad has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if SKB Shutters Corporation Berhad can keep these trends up, it could have a bright future ahead.

One more thing, we've spotted 1 warning sign facing SKB Shutters Corporation Berhad that you might find interesting.

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.