Returns On Capital Are Showing Encouraging Signs At Iconic Worldwide Berhad (KLSE:ICONIC)

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Iconic Worldwide Berhad (KLSE:ICONIC) looks quite promising in regards to its trends of return on capital.

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. 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)

0.046 = RM14m ÷ (RM347m - RM52m) (Based on the trailing twelve months to June 2022).

Therefore, Iconic Worldwide Berhad has an ROCE of 4.6%. Even though it's in line with the industry average of 5.3%, it's still a low return by itself.

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'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 4.6% on its capital. And unsurprisingly, like most companies trying to break into the black, Iconic Worldwide Berhad is utilizing 222% 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.

Our Take 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. Astute investors may have an opportunity here because the stock has declined 46% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

Iconic Worldwide Berhad does have some risks, we noticed 5 warning signs (and 1 which is significant) we think you should know about.

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.