What We Make Of Icon Offshore Berhad's (KLSE:ICON) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Icon Offshore Berhad:

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

0.075 = RM52m ÷ (RM784m - RM91m) (Based on the trailing twelve months to September 2020).

Therefore, Icon Offshore Berhad has an ROCE of 7.5%. In absolute terms, that's a low return but it's around the Energy Services industry average of 8.6%.

See 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.

So How Is Icon Offshore Berhad's ROCE Trending?

Icon Offshore Berhad has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 247%. The company is now earning RM0.08 per dollar of capital employed. In regards to capital employed, Icon Offshore Berhad appears to been achieving more with less, since the business is using 56% less capital to run its operation. 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.

Our Take On Icon Offshore Berhad's ROCE

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. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Icon Offshore Berhad (of which 3 shouldn't be ignored!) that you should know about.

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. 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.
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