The Return Trends At PRG Holdings Berhad (KLSE:PRG) Look Promising

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at PRG Holdings Berhad (KLSE:PRG) and its trend of ROCE, we really liked what we saw.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for PRG Holdings Berhad:

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

0.089 = RM27m ÷ (RM456m - RM159m) (Based on the trailing twelve months to March 2024).

Thus, PRG Holdings Berhad has an ROCE of 8.9%. On its own that's a low return, but compared to the average of 5.4% generated by the Luxury industry, it's much better.

See our latest analysis for PRG 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 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?

We're delighted to see that PRG Holdings Berhad is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 8.9% on its capital. And unsurprisingly, like most companies trying to break into the black, PRG Holdings Berhad is utilizing 39% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 35%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Key Takeaway

To the delight of most shareholders, PRG Holdings Berhad has now broken into profitability. However the stock is down a substantial 75% in the last five years so there could be other areas of the business hurting its prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

PRG Holdings Berhad does have some risks though, and we've spotted 2 warning signs for PRG Holdings Berhad that you might be interested in.

While PRG Holdings 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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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.

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