PRG Holdings Berhad (KLSE:PRG) Is Experiencing Growth In Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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, PRG Holdings Berhad (KLSE:PRG) 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. To calculate this metric for PRG Holdings Berhad, this is the formula:

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

0.07 = RM21m ÷ (RM413m - RM115m) (Based on the trailing twelve months to June 2024).

Thus, PRG Holdings Berhad has an ROCE of 7.0%. In absolute terms, that's a low return but it's around the Luxury industry average of 8.0%.

View our latest analysis for PRG Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for PRG Holdings Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of PRG Holdings Berhad.

So How Is PRG Holdings Berhad's ROCE Trending?

PRG Holdings Berhad has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 7.0% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by PRG Holdings Berhad has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 28%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

What We Can Learn From PRG Holdings Berhad's ROCE

In summary, we're delighted to see that PRG Holdings Berhad has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Although the company may be facing some issues elsewhere since the stock has plunged 83% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

One more thing, we've spotted 3 warning signs facing PRG Holdings Berhad that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.