Icon Offshore Berhad (KLSE:ICON) Is Experiencing Growth In Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Icon Offshore Berhad's (KLSE:ICON) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Icon Offshore Berhad, this is the formula:

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

0.13 = RM90m ÷ (RM956m - RM256m) (Based on the trailing twelve months to March 2022).

Thus, Icon Offshore Berhad has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Energy Services industry average of 7.6% it's much better.

Check out our latest analysis for Icon Offshore Berhad

In the above chart we have measured Icon Offshore 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 report on analyst forecasts for the company.

The Trend Of ROCE

Icon Offshore Berhad has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 877%. The company is now earning RM0.1 per dollar of capital employed. Speaking of capital employed, the company is actually utilizing 36% less than it was five years ago, which can be indicative of a business that's improving its efficiency. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

What We Can Learn From Icon Offshore Berhad's ROCE

In summary, it's great to see that Icon Offshore Berhad has been able to turn things around and earn higher returns on lower amounts of capital. Although the company may be facing some issues elsewhere since the stock has plunged 99% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

Icon Offshore Berhad does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those 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.