SKB Shutters Corporation Berhad (KLSE:SKBSHUT) Might Have The Makings Of A Multi-Bagger

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. 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)

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. 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)

0.05 = RM6.5m ÷ (RM168m - RM37m) (Based on the trailing twelve months to September 2021).

So, SKB Shutters Corporation Berhad has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Building industry average of 6.2%.

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

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. The figures show that over the last five years, ROCE has grown 215% 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.

What We Can Learn From SKB Shutters Corporation Berhad's ROCE

To bring it all together, SKB Shutters Corporation Berhad has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 153% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to continue researching SKB Shutters Corporation Berhad, you might be interested to know about the 3 warning signs that our analysis has discovered.

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.

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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.