Returns At Iconic Worldwide Berhad (KLSE:ICONIC) 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? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Iconic Worldwide Berhad (KLSE:ICONIC) and its trend of ROCE, we really liked what we saw.

Understanding 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. To calculate this metric for Iconic Worldwide Berhad, this is the formula:

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

0.04 = RM12m ÷ (RM347m - RM48m) (Based on the trailing twelve months to September 2022).

Therefore, Iconic Worldwide Berhad has an ROCE of 4.0%. On its own, that's a low figure but it's around the 4.7% average generated by the Hospitality industry.

See our latest analysis for Iconic Worldwide Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Iconic Worldwide Berhad's ROCE against it's prior returns. 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 The Trend Of ROCE Can Tell Us

We're delighted to see that Iconic Worldwide Berhad is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 4.0% on its capital. And unsurprisingly, like most companies trying to break into the black, Iconic Worldwide Berhad is utilizing 228% more capital than it was five years ago. 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.

In Conclusion...

Overall, Iconic Worldwide Berhad gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Astute investors may have an opportunity here because the stock has declined 29% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, Iconic Worldwide Berhad does come with some risks, and we've found 2 warning signs that you should be aware of.

While Iconic Worldwide 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.