A Look Into Frontken Corporation Berhad's (KLSE:FRONTKN) Impressive Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Ergo, when we looked at the ROCE trends at Frontken Corporation Berhad (KLSE:FRONTKN), we liked what we saw.

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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 Frontken Corporation Berhad is:

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

0.25 = RM199m ÷ (RM989m - RM188m) (Based on the trailing twelve months to December 2024).

Thus, Frontken Corporation Berhad has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 6.0% earned by companies in a similar industry.

See our latest analysis for Frontken Corporation Berhad

Above you can see how the current ROCE for Frontken Corporation Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Frontken Corporation Berhad .

What The Trend Of ROCE Can Tell Us

It's hard not to be impressed by Frontken Corporation Berhad's returns on capital. The company has consistently earned 25% for the last five years, and the capital employed within the business has risen 94% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If Frontken Corporation Berhad can keep this up, we'd be very optimistic about its future.

What We Can Learn From Frontken Corporation Berhad's ROCE

In short, we'd argue Frontken Corporation Berhad has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. On top of that, the stock has rewarded shareholders with a remarkable 174% return to those who've held over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation for FRONTKN on our platform that is definitely worth checking out.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.