Batu Kawan Berhad (KLSE:BKAWAN) Is Doing The Right Things To Multiply Its Share Price

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Batu Kawan Berhad's (KLSE:BKAWAN) returns on capital, so let's have a look.

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. To calculate this metric for Batu Kawan Berhad, this is the formula:

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

0.15 = RM3.8b ÷ (RM33b - RM6.6b) (Based on the trailing twelve months to March 2022).

Therefore, Batu Kawan Berhad has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Chemicals industry average of 9.5% it's much better.

Check out our latest analysis for Batu Kawan Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Batu Kawan Berhad's ROCE against it's prior returns. If you're interested in investigating Batu Kawan Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

The trends we've noticed at Batu Kawan Berhad are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 47% more capital is being employed now too. So we're very much inspired by what we're seeing at Batu Kawan Berhad thanks to its ability to profitably reinvest capital.

What We Can Learn From Batu Kawan Berhad's ROCE

All in all, it's terrific to see that Batu Kawan Berhad is reaping the rewards from prior investments and is growing its capital base. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 37% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One final note, you should learn about the 3 warning signs we've spotted with Batu Kawan Berhad (including 1 which can't be ignored) .

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.