Why The 20% Return On Capital At Supermax Corporation Berhad (KLSE:SUPERMX) Should Have Your Attention

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 Supermax Corporation Berhad (KLSE:SUPERMX) we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Supermax Corporation Berhad:

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

0.20 = RM1.0b ÷ (RM5.9b - RM806m) (Based on the trailing twelve months to June 2022).

Therefore, Supermax Corporation Berhad has an ROCE of 20%. On its own that's a fantastic return on capital, though it's the same as the Medical Equipment industry average of 20%.

See our latest analysis for Supermax Corporation Berhad

In the above chart we have measured Supermax Corporation Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Supermax Corporation Berhad. Over the last five years, returns on capital employed have risen substantially to 20%. 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 320%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

One more thing to note, Supermax Corporation Berhad has decreased current liabilities to 14% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Supermax Corporation Berhad has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Supermax Corporation Berhad's ROCE

All in all, it's terrific to see that Supermax Corporation Berhad is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 94% return over the last five years. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

If you want to know some of the risks facing Supermax Corporation Berhad we've found 4 warning signs (2 are concerning!) that you should be aware of before investing here.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.