Mobilia Holdings Berhad (KLSE:MOBILIA) Is Aiming To Keep Up Its Impressive Returns

What are the early trends we should look for to identify a stock that could 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at Mobilia Holdings Berhad's (KLSE:MOBILIA) ROCE trend, we were very happy with what we saw.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Mobilia Holdings Berhad:

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

0.21 = RM19m ÷ (RM104m - RM16m) (Based on the trailing twelve months to September 2022).

Thus, Mobilia Holdings Berhad has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

Check out our latest analysis for Mobilia Holdings Berhad

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

The Trend Of ROCE

In terms of Mobilia Holdings Berhad's history of ROCE, it's quite impressive. The company has employed 198% more capital in the last four years, and the returns on that capital have remained stable at 21%. Now considering ROCE is an attractive 21%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Mobilia Holdings Berhad can keep this up, we'd be very optimistic about its future.

One more thing to note, even though ROCE has remained relatively flat over the last four years, the reduction in current liabilities to 16% of total assets, is good to see from a business owner's perspective. Effectively suppliers now fund less of the business, which can lower some elements of risk.

What We Can Learn From Mobilia Holdings Berhad's ROCE

Mobilia Holdings Berhad has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And given the stock has only risen 5.1% over the last year, we'd suspect the market is beginning to recognize these trends. So to determine if Mobilia Holdings Berhad is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

One more thing: We've identified 3 warning signs with Mobilia Holdings Berhad (at least 1 which is concerning) , and understanding these would certainly be useful.

Mobilia Holdings Berhad is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.