The Trends At Kim Loong Resources Berhad (KLSE:KMLOONG) That You Should Know About

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So, when we ran our eye over Kim Loong Resources Berhad's (KLSE:KMLOONG) trend of ROCE, we liked what we saw.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Kim Loong Resources Berhad:

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

0.12 = RM122m ÷ (RM1.1b - RM136m) (Based on the trailing twelve months to October 2020).

Thus, Kim Loong Resources Berhad has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 7.7% generated by the Food industry.

View our latest analysis for Kim Loong 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 want to delve into the historical earnings, revenue and cash flow of Kim Loong Resources Berhad, check out these free graphs here.

What Does the ROCE Trend For Kim Loong Resources Berhad Tell Us?

While the current returns on capital are decent, they haven't changed much. The company has employed 36% more capital in the last five years, and the returns on that capital have remained stable at 12%. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

Our Take On Kim Loong Resources Berhad's ROCE

The main thing to remember is that Kim Loong Resources Berhad has proven its ability to continually reinvest at respectable rates of return. And the stock has followed suit returning a meaningful 66% to shareholders over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Kim Loong Resources Berhad does have some risks, we noticed 2 warning signs (and 1 which is a bit unpleasant) we think you should know about.

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. 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.
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