Why We Like The Returns At Optimax Holdings Berhad (KLSE:OPTIMAX)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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 when we looked at the ROCE trend of Optimax Holdings Berhad (KLSE:OPTIMAX) we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

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 Optimax Holdings Berhad is:

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

0.25 = RM20m ÷ (RM93m - RM14m) (Based on the trailing twelve months to December 2021).

Therefore, Optimax Holdings Berhad has an ROCE of 25%. In absolute terms that's a great return and it's even better than the Healthcare industry average of 18%.

Check out our latest analysis for Optimax Holdings Berhad

Above you can see how the current ROCE for Optimax Holdings Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Optimax Holdings Berhad here for free.

What Can We Tell From Optimax Holdings Berhad's ROCE Trend?

We like the trends that we're seeing from Optimax Holdings Berhad. Over the last five years, returns on capital employed have risen substantially to 25%. Basically the business is earning more per dollar of capital invested and in addition to that, 243% more capital is being employed now too. So we're very much inspired by what we're seeing at Optimax Holdings Berhad thanks to its ability to profitably reinvest capital.

One more thing to note, Optimax Holdings Berhad has decreased current liabilities to 15% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From Optimax Holdings Berhad's ROCE

In summary, it's great to see that Optimax 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. Astute investors may have an opportunity here because the stock has declined 24% in the last year. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we've found 3 warning signs for Optimax Holdings Berhad that we think you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.