Investors Will Want Bumi Armada Berhad's (KLSE:ARMADA) Growth In ROCE To Persist

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 when we looked at Bumi Armada Berhad (KLSE:ARMADA) 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. The formula for this calculation on Bumi Armada Berhad is:

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

0.14 = RM1.2b ÷ (RM11b - RM3.2b) (Based on the trailing twelve months to June 2024).

So, Bumi Armada Berhad has an ROCE of 14%. That's a pretty standard return and it's in line with the industry average of 14%.

See our latest analysis for Bumi Armada Berhad

In the above chart we have measured Bumi Armada Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Bumi Armada Berhad .

So How Is Bumi Armada Berhad's ROCE Trending?

We're pretty happy with how the ROCE has been trending at Bumi Armada Berhad. The figures show that over the last five years, returns on capital have grown by 246%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 27% less capital than it was five years ago. Bumi Armada Berhad may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

What We Can Learn From Bumi Armada Berhad's ROCE

In summary, it's great to see that Bumi Armada Berhad has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has only returned 10% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing, we've spotted 2 warning signs facing Bumi Armada Berhad that you might find interesting.

While Bumi Armada 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.