We Like These Underlying Return On Capital Trends At Meta Bright Group Berhad (KLSE:MBRIGHT)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 when we looked at Meta Bright Group Berhad (KLSE:MBRIGHT) and its trend of ROCE, we really liked what we saw.

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 Meta Bright Group Berhad:

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

0.05 = RM9.5m ÷ (RM245m - RM53m) (Based on the trailing twelve months to June 2022).

Therefore, Meta Bright Group Berhad has an ROCE of 5.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.5%.

Check out our latest analysis for Meta Bright Group Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Meta Bright Group Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Meta Bright Group Berhad, check out these free graphs here.

The Trend Of ROCE

Shareholders will be relieved that Meta Bright Group Berhad has broken into profitability. The company now earns 5.0% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Bottom Line On Meta Bright Group Berhad's ROCE

To bring it all together, Meta Bright Group Berhad has done well to increase the returns it's generating from its capital employed. Given the stock has declined 35% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One final note, you should learn about the 3 warning signs we've spotted with Meta Bright Group Berhad (including 2 which can'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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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.