Returns On Capital - An Important Metric For Lee Swee Kiat Group Berhad (KLSE:LEESK)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. With that in mind, we've noticed some promising trends at Lee Swee Kiat Group Berhad (KLSE:LEESK) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Lee Swee Kiat Group Berhad:

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

0.15 = RM10m ÷ (RM92m - RM27m) (Based on the trailing twelve months to September 2020).

Thus, Lee Swee Kiat Group Berhad has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 12% generated by the Consumer Durables industry.

See our latest analysis for Lee Swee Kiat Group Berhad

In the above chart we have measured Lee Swee Kiat Group Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Lee Swee Kiat Group Berhad here for free.

What Does the ROCE Trend For Lee Swee Kiat Group Berhad Tell Us?

Investors would be pleased with what's happening at Lee Swee Kiat Group Berhad. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 40% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line On Lee Swee Kiat Group Berhad's ROCE

To sum it up, Lee Swee Kiat Group Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 278% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a separate note, we've found 3 warning signs for Lee Swee Kiat Group Berhad you'll probably want to know about.

While Lee Swee Kiat Group Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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