Investors Will Want Nextgreen Global Berhad's (KLSE:NGGB) Growth In ROCE To Persist

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. 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 Nextgreen Global Berhad's (KLSE:NGGB) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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 Nextgreen Global Berhad is:

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

0.055 = RM21m ÷ (RM440m - RM67m) (Based on the trailing twelve months to September 2023).

Therefore, Nextgreen Global Berhad has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 7.6%.

See our latest analysis for Nextgreen Global Berhad

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

So How Is Nextgreen Global Berhad's ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 5.5%. The amount of capital employed has increased too, by 195%. 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.

Our Take On Nextgreen Global Berhad's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Nextgreen Global Berhad has. And a remarkable 112% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Nextgreen Global Berhad can keep these trends up, it could have a bright future ahead.

One more thing: We've identified 2 warning signs with Nextgreen Global Berhad (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

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.