The Trend Of High Returns At PETRONAS Dagangan Berhad (KLSE:PETDAG) Has Us Very Interested

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. And in light of that, the trends we're seeing at PETRONAS Dagangan Berhad's (KLSE:PETDAG) look very promising so lets take a look.

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What Is 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 PETRONAS Dagangan Berhad, this is the formula:

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

0.25 = RM1.6b ÷ (RM11b - RM4.7b) (Based on the trailing twelve months to June 2025).

Therefore, PETRONAS Dagangan Berhad has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Oil and Gas industry average of 9.0%.

See our latest analysis for PETRONAS Dagangan Berhad

Above you can see how the current ROCE for PETRONAS Dagangan Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for PETRONAS Dagangan Berhad .

What The Trend Of ROCE Can Tell Us

PETRONAS Dagangan Berhad's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 188% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 43% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

In Conclusion...

To bring it all together, PETRONAS Dagangan Berhad has done well to increase the returns it's generating from its capital employed. Since the stock has only returned 38% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for PETRONAS Dagangan Berhad (of which 1 is potentially serious!) that you should know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.