Investors Shouldn't Overlook Leong Hup International Berhad's (KLSE:LHI) Impressive Returns On Capital

If you're looking for a multi-bagger, there's a few things to 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. Speaking of which, we noticed some great changes in Leong Hup International Berhad's (KLSE:LHI) returns on capital, so let's have a look.

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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 Leong Hup International Berhad is:

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

0.20 = RM867m ÷ (RM6.4b - RM2.1b) (Based on the trailing twelve months to September 2025).

Thus, Leong Hup International Berhad has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 10% earned by companies in a similar industry.

View our latest analysis for Leong Hup International Berhad

In the above chart we have measured Leong Hup International Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Leong Hup International Berhad for free.

How Are Returns Trending?

Investors would be pleased with what's happening at Leong Hup International Berhad. Over the last five years, returns on capital employed have risen substantially to 20%. The amount of capital employed has increased too, by 37%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

One more thing to note, Leong Hup International Berhad has decreased current liabilities to 32% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Leong Hup International Berhad has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Leong Hup International Berhad's ROCE

To sum it up, Leong Hup International Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 5.3% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing: We've identified 2 warning signs with Leong Hup International Berhad (at least 1 which doesn't sit too well with us) , and understanding these would certainly be useful.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.