Returns At Kim Teck Cheong Consolidated Berhad (KLSE:KTC) Are On The Way Up

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Kim Teck Cheong Consolidated Berhad (KLSE:KTC) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Kim Teck Cheong Consolidated Berhad:

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

0.16 = RM37m ÷ (RM364m - RM130m) (Based on the trailing twelve months to September 2023).

Thus, Kim Teck Cheong Consolidated Berhad has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 10% generated by the Consumer Retailing industry.

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

What Does the ROCE Trend For Kim Teck Cheong Consolidated Berhad Tell Us?

Investors would be pleased with what's happening at Kim Teck Cheong Consolidated Berhad. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 107% more capital is being employed now too. So we're very much inspired by what we're seeing at Kim Teck Cheong Consolidated Berhad thanks to its ability to profitably reinvest capital.

One more thing to note, Kim Teck Cheong Consolidated Berhad has decreased current liabilities to 36% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. 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.

Our Take On Kim Teck Cheong Consolidated Berhad's ROCE

In summary, it's great to see that Kim Teck Cheong Consolidated Berhad can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a solid 44% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Kim Teck Cheong Consolidated Berhad can keep these trends up, it could have a bright future ahead.

Kim Teck Cheong Consolidated Berhad does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is potentially serious...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.