Returns On Capital Are Showing Encouraging Signs At QL Resources Berhad (KLSE:QL)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, QL Resources Berhad (KLSE:QL) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for QL Resources Berhad, this is the formula:

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

0.15 = RM511m ÷ (RM5.3b - RM1.8b) (Based on the trailing twelve months to December 2022).

Therefore, QL Resources Berhad has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 10% it's much better.

Check out our latest analysis for QL Resources Berhad

In the above chart we have measured QL Resources Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for QL Resources Berhad.

SWOT Analysis for QL Resources Berhad

So How Is QL Resources Berhad's ROCE Trending?

The trends we've noticed at QL Resources Berhad are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. 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 50%. So we're very much inspired by what we're seeing at QL Resources Berhad thanks to its ability to profitably reinvest capital.

Our Take On QL Resources Berhad's ROCE

To sum it up, QL Resources Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 66% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if QL Resources Berhad can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation that compares the share price and estimated value.

While QL Resources Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.