Does YBS International Berhad (KLSE:YBS) Have The Makings Of A Multi-Bagger?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, YBS International Berhad (KLSE:YBS) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for YBS International Berhad, this is the formula:

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

0.0042 = RM276k ÷ (RM81m - RM15m) (Based on the trailing twelve months to September 2020).

Thus, YBS International Berhad has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 10%.

Check out our latest analysis for YBS International Berhad

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

What Does the ROCE Trend For YBS International Berhad Tell Us?

We're delighted to see that YBS International Berhad is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 0.4% on its capital. While returns have increased, the amount of capital employed by YBS International Berhad has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

Our Take On YBS International Berhad's ROCE

To bring it all together, YBS International Berhad has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

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

While YBS International 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. 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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