Investors Will Want Marine & General Berhad's (KLSE:M&G) Growth In ROCE To Persist

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Marine & General Berhad's (KLSE:M&G) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Marine & General Berhad, this is the formula:

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

0.083 = RM59m ÷ (RM851m - RM142m) (Based on the trailing twelve months to October 2023).

So, Marine & General Berhad has an ROCE of 8.3%. In absolute terms, that's a low return but it's around the Energy Services industry average of 8.6%.

View our latest analysis for Marine & General Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Marine & General Berhad has performed in the past in other metrics, you can view this free graph of Marine & General Berhad's past earnings, revenue and cash flow.

What Can We Tell From Marine & General Berhad's ROCE Trend?

We're delighted to see that Marine & General Berhad is reaping rewards from its investments and has now broken into profitability. The company now earns 8.3% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by Marine & General Berhad has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.

The Key Takeaway

To sum it up, Marine & General Berhad is collecting higher returns from the same amount of capital, and that's impressive. And a remarkable 137% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Marine & General Berhad can keep these trends up, it could have a bright future ahead.

Marine & General Berhad does come with some risks though, we found 4 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

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.