Returns Are Gaining Momentum At T7 Global Berhad (KLSE:T7GLOBAL)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. With that in mind, we've noticed some promising trends at T7 Global Berhad (KLSE:T7GLOBAL) so let's look a bit deeper.

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 T7 Global Berhad:

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

0.087 = RM69m ÷ (RM1.2b - RM432m) (Based on the trailing twelve months to September 2023).

So, T7 Global Berhad has an ROCE of 8.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.2%.

Check out our latest analysis for T7 Global Berhad

Above you can see how the current ROCE for T7 Global Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 8.7%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 372%. So we're very much inspired by what we're seeing at T7 Global Berhad thanks to its ability to profitably reinvest capital.

What We Can Learn From T7 Global Berhad's ROCE

All in all, it's terrific to see that T7 Global Berhad is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 21% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

If you want to know some of the risks facing T7 Global Berhad we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

While T7 Global 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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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.