Investors Will Want Riverview Rubber Estates Berhad's (KLSE:RVIEW) Growth In ROCE To Persist

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Riverview Rubber Estates Berhad (KLSE:RVIEW) 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 Riverview Rubber Estates Berhad is:

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

0.088 = RM28m ÷ (RM319m - RM5.0m) (Based on the trailing twelve months to September 2021).

Thus, Riverview Rubber Estates Berhad has an ROCE of 8.8%. In absolute terms, that's a low return but it's around the Food industry average of 8.5%.

View our latest analysis for Riverview Rubber Estates Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Riverview Rubber Estates Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Riverview Rubber Estates Berhad, check out these free graphs here.

What Can We Tell From Riverview Rubber Estates Berhad's ROCE Trend?

Riverview Rubber Estates Berhad's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 264% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

To bring it all together, Riverview Rubber Estates Berhad has done well to increase the returns it's generating from its capital employed. Since the stock has only returned 9.3% 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.

If you want to know some of the risks facing Riverview Rubber Estates Berhad we've found 3 warning signs (1 is concerning!) that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.