Bahvest Resources Berhad (KLSE:BAHVEST) Is Looking To Continue Growing Its Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. So when we looked at Bahvest Resources Berhad (KLSE:BAHVEST) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on Bahvest Resources Berhad is:

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

0.11 = RM14m ÷ (RM154m - RM29m) (Based on the trailing twelve months to December 2021).

So, Bahvest Resources Berhad has an ROCE of 11%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Food industry average of 9.9%.

View our latest analysis for Bahvest Resources 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 Bahvest Resources Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Bahvest Resources Berhad Tell Us?

Like most people, we're pleased that Bahvest Resources Berhad is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 11% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 22%. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

In Conclusion...

In summary, it's great to see that Bahvest Resources Berhad has been able to turn things around and earn higher returns on lower amounts of capital. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 9.1% to shareholders. So with that in mind, we think the stock deserves further research.

On the other side of ROCE, we have to consider valuation. That's why we have a FREE intrinsic value estimation on our platform that is definitely worth checking out.

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.