Returns Are Gaining Momentum At Straits Inter Logistics Berhad (KLSE:STRAITS)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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 when we looked at Straits Inter Logistics Berhad (KLSE:STRAITS) and its trend of ROCE, we really liked what we saw.

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 Straits Inter Logistics Berhad is:

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

0.056 = RM9.6m ÷ (RM328m - RM156m) (Based on the trailing twelve months to March 2021).

Thus, Straits Inter Logistics Berhad has an ROCE of 5.6%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 12%.

See our latest analysis for Straits Inter Logistics Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Straits Inter Logistics Berhad's ROCE against it's prior returns. If you're interested in investigating Straits Inter Logistics Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Straits Inter Logistics Berhad's ROCE Trending?

We're delighted to see that Straits Inter Logistics Berhad is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 5.6% on its capital. And unsurprisingly, like most companies trying to break into the black, Straits Inter Logistics Berhad is utilizing 1,980% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 48% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

The Bottom Line On Straits Inter Logistics Berhad's ROCE

Overall, Straits Inter Logistics Berhad gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 56% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

Straits Inter Logistics Berhad does have some risks, we noticed 4 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While Straits Inter Logistics Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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