We Like These Underlying Return On Capital Trends At YBS International Berhad (KLSE:YBS)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 YBS International Berhad's (KLSE:YBS) returns on capital, so let's have a look.

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 YBS International Berhad is:

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

0.085 = RM9.7m ÷ (RM143m - RM29m) (Based on the trailing twelve months to June 2022).

Thus, YBS International Berhad has an ROCE of 8.5%. Ultimately, that's a low return and it under-performs the Machinery industry average of 13%.

View 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 want to delve into the historical earnings, revenue and cash flow of YBS International Berhad, check out these free graphs here.

The Trend Of ROCE

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 8.5%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 83%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On YBS International Berhad's ROCE

All in all, it's terrific to see that YBS International Berhad is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 316% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if YBS International Berhad can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 5 warning signs with YBS International Berhad (at least 2 which are concerning) , and understanding these would certainly be useful.

While YBS International Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list 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.