Mobilia Holdings Berhad (KLSE:MOBILIA) Will Want To Turn Around Its Return Trends

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. However, after investigating Mobilia Holdings Berhad (KLSE:MOBILIA), we don't think it's current trends fit the mold of a multi-bagger.

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

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

0.16 = RM17m ÷ (RM119m - RM16m) (Based on the trailing twelve months to December 2024).

Thus, Mobilia Holdings Berhad has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Consumer Durables industry average of 5.1% it's much better.

View our latest analysis for Mobilia 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'd like to look at how Mobilia Holdings Berhad has performed in the past in other metrics, you can view this free graph of Mobilia Holdings Berhad's past earnings, revenue and cash flow .

The Trend Of ROCE

On the surface, the trend of ROCE at Mobilia Holdings Berhad doesn't inspire confidence. To be more specific, ROCE has fallen from 26% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

On a related note, Mobilia Holdings Berhad has decreased its current liabilities to 13% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

What We Can Learn From Mobilia Holdings Berhad's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Mobilia Holdings Berhad is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 31% over the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you want to continue researching Mobilia Holdings Berhad, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Mobilia Holdings Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.