SKB Shutters Corporation Berhad (KLSE:SKBSHUT) Is Looking To Continue Growing Its Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at SKB Shutters Corporation Berhad (KLSE:SKBSHUT) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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)

0.033 = RM4.1m ÷ (RM155m - RM30m) (Based on the trailing twelve months to March 2021).

Therefore, SKB Shutters Corporation Berhad has an ROCE of 3.3%. Ultimately, that's a low return and it under-performs the Building industry average of 8.2%.

Check out our latest analysis for SKB Shutters Corporation Berhad

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

The Trend Of ROCE

The fact that SKB Shutters Corporation Berhad is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 3.3% on its capital. And unsurprisingly, like most companies trying to break into the black, SKB Shutters Corporation Berhad is utilizing 59% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Key Takeaway

To the delight of most shareholders, SKB Shutters Corporation Berhad has now broken into profitability. 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.

SKB Shutters Corporation Berhad does come with some risks though, we found 6 warning signs in our investment analysis, and 1 of those is potentially serious...

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.
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