Resources Holdings Berhad (KLSE:PTRB) Will Be Hoping To Turn Its Returns On Capital Around

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Resources Holdings Berhad (KLSE:PTRB), we don't think it's current trends fit the mold of a multi-bagger.

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Understanding Return On Capital Employed (ROCE)

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

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

0.12 = RM27m ÷ (RM351m - RM132m) (Based on the trailing twelve months to January 2025).

So, Resources Holdings Berhad has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 9.3% it's much better.

Check out our latest analysis for Resources Holdings Berhad

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

The Trend Of ROCE

When we looked at the ROCE trend at Resources Holdings Berhad, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 12% from 31% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

To conclude, we've found that Resources Holdings Berhad is reinvesting in the business, but returns have been falling. Since the stock has declined 43% over the last year, investors may not be too optimistic on this trend improving either. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

One more thing: We've identified 4 warning signs with Resources Holdings Berhad (at least 2 which are significant) , and understanding them would certainly be useful.

While Resources Holdings 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.