The Return Trends At Oversea Enterprise Berhad (KLSE:OVERSEA) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 Oversea Enterprise Berhad's (KLSE:OVERSEA) returns on capital, so let's have a look.

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. The formula for this calculation on Oversea Enterprise Berhad is:

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

0.0027 = RM262k ÷ (RM111m - RM13m) (Based on the trailing twelve months to March 2023).

Thus, Oversea Enterprise Berhad has an ROCE of 0.3%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 5.8%.

View our latest analysis for Oversea Enterprise Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Oversea Enterprise Berhad's ROCE against it's prior returns. If you'd like to look at how Oversea Enterprise Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Oversea Enterprise Berhad's ROCE Trend?

The fact that Oversea Enterprise 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 0.3% on its capital. In addition to that, Oversea Enterprise Berhad is employing 47% more capital than previously which is expected of a company that's 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.

What We Can Learn From Oversea Enterprise Berhad's ROCE

In summary, it's great to see that Oversea Enterprise Berhad has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a solid 90% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 4 warning signs for Oversea Enterprise Berhad (2 are significant) you should be aware of.

While Oversea Enterprise Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.