Investors Will Want Iconic Worldwide Berhad's (KLSE:ICONIC) Growth In ROCE To Persist

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Iconic Worldwide Berhad (KLSE:ICONIC) looks quite promising in regards to its trends of return on capital.

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 Iconic Worldwide Berhad:

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

0.047 = RM8.3m ÷ (RM190m - RM14m) (Based on the trailing twelve months to March 2021).

So, Iconic Worldwide Berhad has an ROCE of 4.7%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 7.6%.

Check out 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 want to delve into the historical earnings, revenue and cash flow of Iconic Worldwide Berhad, check out these free graphs here.

What Can We Tell From Iconic Worldwide Berhad's ROCE Trend?

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 4.7% on its capital. Not only that, but the company is utilizing 93% more capital than before, but that's to be expected from a company 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.

The Bottom Line On Iconic Worldwide Berhad's ROCE

Long story short, we're delighted to see that Iconic Worldwide Berhad's reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Iconic Worldwide Berhad can keep these trends up, it could have a bright future ahead.

Iconic Worldwide Berhad does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

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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