There's Been No Shortage Of Growth Recently For Perdana Petroleum Berhad's (KLSE:PERDANA) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Perdana Petroleum Berhad's (KLSE:PERDANA) returns on capital, so let's have a look.

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What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Perdana Petroleum Berhad, this is the formula:

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

0.18 = RM153m ÷ (RM960m - RM97m) (Based on the trailing twelve months to December 2024).

So, Perdana Petroleum Berhad has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Energy Services industry average of 13% it's much better.

Check out our latest analysis for Perdana Petroleum 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Perdana Petroleum Berhad .

So How Is Perdana Petroleum Berhad's ROCE Trending?

Perdana Petroleum Berhad has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 2,377% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 10%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Perdana Petroleum Berhad has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Perdana Petroleum Berhad's ROCE

To bring it all together, Perdana Petroleum Berhad has done well to increase the returns it's generating from its capital employed. Since the stock has only returned 3.0% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a final note, we've found 3 warning signs for Perdana Petroleum Berhad that we think you should be aware of.

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.