Investors Should Be Encouraged By Hartalega Holdings Berhad's (KLSE:HARTA) 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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Hartalega Holdings Berhad (KLSE:HARTA) we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 Hartalega Holdings Berhad is:

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

0.34 = RM1.9b ÷ (RM6.0b - RM520m) (Based on the trailing twelve months to June 2022).

So, Hartalega Holdings Berhad has an ROCE of 34%. That's a fantastic return and not only that, it outpaces the average of 22% earned by companies in a similar industry.

View our latest analysis for Hartalega Holdings Berhad

In the above chart we have measured Hartalega Holdings 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 Hartalega Holdings Berhad here for free.

The Trend Of ROCE

We like the trends that we're seeing from Hartalega Holdings Berhad. Over the last five years, returns on capital employed have risen substantially to 34%. The amount of capital employed has increased too, by 178%. So we're very much inspired by what we're seeing at Hartalega Holdings Berhad thanks to its ability to profitably reinvest capital.

Our Take On Hartalega Holdings Berhad's ROCE

In summary, it's great to see that Hartalega Holdings Berhad can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And since the stock has fallen 40% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know about the risks facing Hartalega Holdings Berhad, we've discovered 3 warning signs that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.