Southern Score Builders Berhad (KLSE:SSB8) Is Reinvesting To Multiply In Value

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. With that in mind, the ROCE of Southern Score Builders Berhad (KLSE:SSB8) looks attractive right now, so lets see what the trend of returns can tell us.

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. To calculate this metric for Southern Score Builders Berhad, this is the formula:

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

0.29 = RM46m ÷ (RM218m - RM58m) (Based on the trailing twelve months to December 2023).

Thus, Southern Score Builders Berhad has an ROCE of 29%. That's a fantastic return and not only that, it outpaces the average of 7.3% earned by companies in a similar industry.

Check out our latest analysis for Southern Score Builders 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 , check out these free graphs detailing revenue and cash flow performance of Southern Score Builders Berhad.

What The Trend Of ROCE Can Tell Us

It's hard not to be impressed by Southern Score Builders Berhad's returns on capital. Over the past five years, ROCE has remained relatively flat at around 29% and the business has deployed 218% more capital into its operations. Now considering ROCE is an attractive 29%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. You'll see this when looking at well operated businesses or favorable business models.

On a side note, Southern Score Builders Berhad has done well to reduce current liabilities to 26% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

What We Can Learn From Southern Score Builders Berhad's ROCE

In short, we'd argue Southern Score Builders Berhad has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And long term investors would be thrilled with the 124% return they've received over the last year. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Southern Score Builders Berhad does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those don't sit too well with us...

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.