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

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. Speaking of which, we noticed some great changes in Meta Bright Group Berhad's (KLSE:MBRIGHT) returns on capital, so let's have a look.

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. The formula for this calculation on Meta Bright Group Berhad is:

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

0.018 = RM3.9m ÷ (RM269m - RM52m) (Based on the trailing twelve months to September 2022).

Therefore, Meta Bright Group Berhad has an ROCE of 1.8%. Ultimately, that's a low return and it under-performs the Hospitality industry average of 4.7%.

Check out our latest analysis for Meta Bright Group 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're interested in investigating Meta Bright Group Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Meta Bright Group Berhad's ROCE Trend?

We're delighted to see that Meta Bright Group Berhad is reaping rewards from its investments and has now broken into profitability. The company now earns 1.8% 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 Key Takeaway

To bring it all together, Meta Bright Group Berhad has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 15% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know more about Meta Bright Group Berhad, we've spotted 3 warning signs, and 2 of them make us uncomfortable.

While Meta Bright Group 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.