Riverview Rubber Estates Berhad (KLSE:RVIEW) Is Experiencing Growth In Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Riverview Rubber Estates Berhad (KLSE:RVIEW) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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)

0.085 = RM26m ÷ (RM317m - RM4.1m) (Based on the trailing twelve months to June 2021).

So, Riverview Rubber Estates Berhad has an ROCE of 8.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.4%.

Check out 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.

So How Is Riverview Rubber Estates Berhad's ROCE Trending?

Riverview Rubber Estates Berhad's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 279% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

Our Take On Riverview Rubber Estates Berhad's ROCE

To bring it all together, Riverview Rubber Estates Berhad has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 6.6% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

On a final note, we found 3 warning signs for Riverview Rubber Estates Berhad (1 is significant) you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.
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