SKB Shutters Corporation Berhad (KLSE:SKBSHUT) Is Doing The Right Things To Multiply Its Share Price

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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.

What is Return On Capital Employed (ROCE)?

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 SKB Shutters Corporation Berhad is:

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

0.052 = RM6.9m ÷ (RM173m - RM42m) (Based on the trailing twelve months to December 2021).

Thus, SKB Shutters Corporation Berhad has an ROCE of 5.2%. On its own, that's a low figure but it's around the 6.3% average 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'd like to look at how SKB Shutters Corporation Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

SKB Shutters Corporation Berhad is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 132% 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

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. 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 more thing to note, we've identified 3 warning signs with SKB Shutters Corporation Berhad and understanding them should be part of your investment process.

While SKB Shutters Corporation 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.