Iconic Worldwide Berhad (KLSE:ICONIC) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Iconic Worldwide Berhad (KLSE:ICONIC) so let's look a bit deeper.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Iconic Worldwide Berhad is:

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

0.049 = RM14m ÷ (RM348m - RM60m) (Based on the trailing twelve months to March 2022).

Thus, Iconic Worldwide Berhad has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 9.7%.

View our latest analysis for Iconic Worldwide 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 Iconic Worldwide 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 Iconic Worldwide Berhad Tell Us?

The fact that Iconic Worldwide Berhad is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 4.9% on its capital. In addition to that, Iconic Worldwide Berhad is employing 212% more capital than previously which is expected of a company that's trying to break into profitability. 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.

What We Can Learn From Iconic Worldwide Berhad's ROCE

To the delight of most shareholders, Iconic Worldwide Berhad has now broken into profitability. Astute investors may have an opportunity here because the stock has declined 20% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

Iconic Worldwide Berhad does have some risks, we noticed 5 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

While Iconic Worldwide 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.