We Like Daibochi Berhad's (KLSE:DAIBOCI) Returns And Here's How They're Trending

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. And in light of that, the trends we're seeing at Daibochi Berhad's (KLSE:DAIBOCI) look very promising so lets take a look.

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. The formula for this calculation on Daibochi Berhad is:

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

0.21 = RM64m ÷ (RM483m - RM176m) (Based on the trailing twelve months to July 2020).

Thus, Daibochi Berhad has an ROCE of 21%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.

See our latest analysis for Daibochi Berhad

In the above chart we have measured Daibochi Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Daibochi Berhad here for free.

The Trend Of ROCE

We like the trends that we're seeing from Daibochi Berhad. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 21%. 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 55%. So we're very much inspired by what we're seeing at Daibochi Berhad thanks to its ability to profitably reinvest capital.

What We Can Learn From Daibochi Berhad's ROCE

All in all, it's terrific to see that Daibochi Berhad is reaping the rewards from prior investments and is growing its capital base. And with a respectable 58% 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. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Daibochi Berhad does have some risks though, and we've spotted 1 warning sign for Daibochi Berhad that you might be interested in.

Daibochi 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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