We Like These Underlying Return On Capital Trends At Eurospan Holdings Berhad (KLSE:EUROSP)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So on that note, Eurospan Holdings Berhad (KLSE:EUROSP) looks quite promising in regards to its trends of return on capital.

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 Eurospan Holdings Berhad is:

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

0.0092 = RM431k ÷ (RM57m - RM10m) (Based on the trailing twelve months to February 2021).

So, Eurospan Holdings Berhad has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 9.9%.

View our latest analysis for Eurospan Holdings Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Eurospan Holdings Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Eurospan Holdings Berhad's ROCE Trend?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. The figures show that over the last five years, ROCE has grown 63% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Eurospan Holdings Berhad's ROCE

As discussed above, Eurospan Holdings Berhad appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 1.9% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing to note, we've identified 2 warning signs with Eurospan Holdings Berhad and understanding them should be part of your investment process.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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