If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Choo Bee Metal Industries Berhad's (KLSE:CHOOBEE) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What is it?
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 Choo Bee Metal Industries Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.095 = RM53m ÷ (RM586m - RM27m) (Based on the trailing twelve months to March 2021).
Thus, Choo Bee Metal Industries Berhad has an ROCE of 9.5%. On its own, that's a low figure but it's around the 9.4% average generated by the Metals and Mining industry.
Above you can see how the current ROCE for Choo Bee Metal Industries 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 Choo Bee Metal Industries Berhad here for free.
So How Is Choo Bee Metal Industries Berhad's ROCE Trending?
While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 9.5%. 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 25%. So we're very much inspired by what we're seeing at Choo Bee Metal Industries Berhad thanks to its ability to profitably reinvest capital.
The Key Takeaway
To sum it up, Choo Bee Metal Industries Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 85% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.
On a final note, we found 3 warning signs for Choo Bee Metal Industries Berhad (1 is potentially serious) you should be aware of.
While Choo Bee Metal Industries Berhad isn't earning the highest return, check out this free list of companies that are 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.
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