These Trends Paint A Bright Future For Comfort Gloves Berhad (KLSE:COMFORT)

Did you know there are some financial metrics that can provide clues of a potential 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, the ROCE of Comfort Gloves Berhad (KLSE:COMFORT) looks great, so lets see what the trend can tell us.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Comfort Gloves Berhad:

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

0.42 = RM213m ÷ (RM670m - RM166m) (Based on the trailing twelve months to October 2020).

So, Comfort Gloves Berhad has an ROCE of 42%. In absolute terms that's a great return and it's even better than the Chemicals industry average of 6.5%.

Check out our latest analysis for Comfort Gloves Berhad

In the above chart we have measured Comfort Gloves Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Comfort Gloves Berhad.

So How Is Comfort Gloves Berhad's ROCE Trending?

Comfort Gloves Berhad is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 42%. The amount of capital employed has increased too, by 306%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Comfort Gloves Berhad's ROCE

To sum it up, Comfort Gloves Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 261% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Like most companies, Comfort Gloves Berhad does come with some risks, and we've found 1 warning sign that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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