The Return Trends At Icon Offshore Berhad (KLSE:ICON) Look Promising

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. 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 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. The formula for this calculation on Icon Offshore Berhad is:

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

0.043 = RM30m ÷ (RM753m - RM68m) (Based on the trailing twelve months to December 2022).

Thus, Icon Offshore Berhad has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Energy Services industry average of 6.6%.

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.

What Can We Tell From Icon Offshore Berhad's ROCE Trend?

While the ROCE is still rather low for Icon Offshore Berhad, we're glad to see it heading in the right direction. The data shows that returns on capital have increased by 99% 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. In regards to capital employed, Icon Offshore Berhad appears to been achieving more with less, since the business is using 24% 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.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 9.0%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Icon Offshore Berhad has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Key Takeaway

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 98% 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 5 warning signs we've spotted with Icon Offshore Berhad (including 3 which are a bit unpleasant) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.