Can Icon Offshore Berhad (KLSE:ICON) Continue To Grow Its Returns On Capital?

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. With that in mind, we've noticed some promising trends at Icon Offshore Berhad (KLSE:ICON) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Icon Offshore Berhad is:

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

0.053 = RM37m ÷ (RM778m - RM74m) (Based on the trailing twelve months to December 2020).

So, Icon Offshore Berhad has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 6.9%.

See our latest analysis for Icon Offshore Berhad

Above you can see how the current ROCE for Icon Offshore Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Does the ROCE Trend For Icon Offshore Berhad Tell Us?

You'd find it hard not to be impressed with the ROCE trend at Icon Offshore Berhad. The data shows that returns on capital have increased by 35% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 44% less capital than it was five years ago. Icon Offshore Berhad may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In Conclusion...

From what we've seen above, Icon Offshore Berhad has managed to increase it's returns on capital all the while reducing it's capital base. Although the company may be facing some issues elsewhere since the stock has plunged 99% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

One final note, you should learn about the 4 warning signs we've spotted with Icon Offshore Berhad (including 1 which is a bit concerning) .

While Icon Offshore 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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