Returns At Khind Holdings Berhad (KLSE:KHIND) Appear To Be Weighed Down

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Although, when we looked at Khind Holdings Berhad (KLSE:KHIND), it didn't seem to tick all of these boxes.

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. To calculate this metric for Khind Holdings Berhad, this is the formula:

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

0.041 = RM9.3m ÷ (RM377m - RM151m) (Based on the trailing twelve months to December 2024).

So, Khind Holdings Berhad has an ROCE of 4.1%. In absolute terms, that's a low return but it's around the Consumer Durables industry average of 5.0%.

Check out our latest analysis for Khind Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Khind Holdings Berhad's ROCE against it's prior returns. If you'd like to look at how Khind Holdings Berhad has performed in the past in other metrics, you can view this free graph of Khind Holdings Berhad's past earnings, revenue and cash flow.

What Does the ROCE Trend For Khind Holdings Berhad Tell Us?

The returns on capital haven't changed much for Khind Holdings Berhad in recent years. The company has consistently earned 4.1% for the last five years, and the capital employed within the business has risen 36% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a separate but related note, it's important to know that Khind Holdings Berhad has a current liabilities to total assets ratio of 40%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Khind Holdings Berhad's ROCE

Long story short, while Khind Holdings Berhad has been reinvesting its capital, the returns that it's generating haven't increased. Although the market must be expecting these trends to improve because the stock has gained 46% over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

On a final note, we found 4 warning signs for Khind Holdings Berhad (2 can't be ignored) you should be aware of.

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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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.