Returns At Reneuco Berhad (KLSE:RENEUCO) Are On The Way Up

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Reneuco Berhad (KLSE:RENEUCO) so let's look a bit deeper.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Reneuco Berhad is:

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

0.055 = RM17m ÷ (RM451m - RM150m) (Based on the trailing twelve months to June 2023).

Therefore, Reneuco Berhad has an ROCE of 5.5%. Ultimately, that's a low return and it under-performs the Luxury industry average of 12%.

View our latest analysis for Reneuco 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 Reneuco Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Reneuco Berhad's ROCE Trend?

Reneuco Berhad has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 5.5% on its capital. In addition to that, Reneuco Berhad is employing 1,013% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

The Bottom Line

To the delight of most shareholders, Reneuco Berhad has now broken into profitability. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 62% return over the last five years. In light of that, we think it's worth looking further into this stock because if Reneuco Berhad can keep these trends up, it could have a bright future ahead.

On a final note, we found 3 warning signs for Reneuco Berhad (1 is potentially serious) you should be aware of.

While Reneuco 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.