Investors Will Want Wong Engineering Corporation Berhad's (KLSE:WONG) Growth In ROCE To Persist

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Wong Engineering Corporation Berhad (KLSE:WONG) so let's look a bit deeper.

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 Wong Engineering Corporation Berhad:

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

0.12 = RM12m ÷ (RM111m - RM13m) (Based on the trailing twelve months to January 2022).

Thus, Wong Engineering Corporation Berhad has an ROCE of 12%. By itself that's a normal return on capital and it's in line with the industry's average returns of 12%.

Check out our latest analysis for Wong Engineering Corporation Berhad

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

So How Is Wong Engineering Corporation Berhad's ROCE Trending?

We're delighted to see that Wong Engineering Corporation Berhad is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 12% on its capital. And unsurprisingly, like most companies trying to break into the black, Wong Engineering Corporation Berhad is utilizing 74% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

What We Can Learn From Wong Engineering Corporation Berhad's ROCE

In summary, it's great to see that Wong Engineering Corporation Berhad has managed to break into profitability and is continuing to reinvest in its business. And with a respectable 83% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Wong Engineering Corporation Berhad can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Wong Engineering Corporation Berhad, we've discovered 4 warning signs that you should be aware of.

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.