Under The Bonnet, Rubberex Corporation (M) Berhad's (KLSE:RUBEREX) Returns Look Impressive

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of Rubberex Corporation (M) Berhad (KLSE:RUBEREX) looks great, so lets see what the trend can tell us.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Rubberex Corporation (M) Berhad, this is the formula:

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

0.35 = RM98m ÷ (RM343m - RM65m) (Based on the trailing twelve months to September 2020).

So, Rubberex Corporation (M) Berhad has an ROCE of 35%. That's a fantastic return and not only that, it outpaces the average of 16% earned by companies in a similar industry.

Check out our latest analysis for Rubberex Corporation (M) Berhad

Above you can see how the current ROCE for Rubberex Corporation (M) 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 Rubberex Corporation (M) Berhad here for free.

What Does the ROCE Trend For Rubberex Corporation (M) Berhad Tell Us?

Rubberex Corporation (M) Berhad's ROCE growth is quite impressive. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 304% over the last five years. 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.

In Conclusion...

To sum it up, Rubberex Corporation (M) Berhad is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has returned a staggering 630% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 2 warning signs facing Rubberex Corporation (M) Berhad that you might find interesting.

Rubberex Corporation (M) Berhad is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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This article by Simply Wall St is general in nature. 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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