Returns On Capital Are Showing Encouraging Signs At Icon Offshore Berhad (KLSE:ICON)

There are a few key trends to look for if we want to identify the next multi-bagger. 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. So on that note, Icon Offshore Berhad (KLSE:ICON) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.10 = RM71m ÷ (RM965m - RM265m) (Based on the trailing twelve months to September 2021).

Thus, Icon Offshore Berhad has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 9.4% generated by the Energy Services industry.

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'd like, you can check out the forecasts from the analysts covering Icon Offshore Berhad here for free.

So How Is Icon Offshore Berhad's ROCE Trending?

We're pretty happy with how the ROCE has been trending at Icon Offshore Berhad. The figures show that over the last five years, returns on capital have grown by 200%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, Icon Offshore Berhad appears to been achieving more with less, since the business is using 43% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

The Bottom Line

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. However the stock is down a substantial 99% in the last five years so there could be other areas of the business hurting its prospects. 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 3 warning signs we've spotted with Icon Offshore Berhad (including 1 which is a bit concerning) .

While Icon Offshore 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.