Investors Will Want Success Transformer Corporation Berhad's (KLSE:SUCCESS) Growth In ROCE To Persist

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Success Transformer Corporation Berhad (KLSE:SUCCESS) and its trend of ROCE, we really liked what we saw.

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 Success Transformer Corporation Berhad is:

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

0.069 = RM29m ÷ (RM444m - RM23m) (Based on the trailing twelve months to March 2024).

Thus, Success Transformer Corporation Berhad has an ROCE of 6.9%. In absolute terms, that's a low return and it also under-performs the Electrical industry average of 9.7%.

See our latest analysis for Success Transformer Corporation Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Success Transformer Corporation Berhad's ROCE against it's prior returns. If you're interested in investigating Success Transformer Corporation Berhad's past further, check out this free graph covering Success Transformer Corporation Berhad's past earnings, revenue and cash flow.

The Trend Of ROCE

Success Transformer Corporation Berhad's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 99% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 5.3%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On Success Transformer Corporation Berhad's ROCE

To sum it up, Success Transformer Corporation Berhad is collecting higher returns from the same amount of capital, and that's impressive. Considering the stock has delivered 17% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

On a separate note, we've found 2 warning signs for Success Transformer Corporation Berhad you'll probably want to know about.

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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