Stock Analysis

Eonmetall Group Berhad's (KLSE:EMETALL) Returns On Capital Are Heading Higher

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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Eonmetall Group Berhad (KLSE:EMETALL) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Eonmetall Group Berhad:

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

0.09 = RM29m ÷ (RM537m - RM212m) (Based on the trailing twelve months to March 2022).

Thus, Eonmetall Group Berhad has an ROCE of 9.0%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 14%.

View our latest analysis for Eonmetall Group Berhad

KLSE:EMETALL Return on Capital Employed June 25th 2022

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

What Does the ROCE Trend For Eonmetall Group Berhad Tell Us?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The data shows that returns on capital have increased substantially over the last five years to 9.0%. The amount of capital employed has increased too, by 88%. So we're very much inspired by what we're seeing at Eonmetall Group Berhad thanks to its ability to profitably reinvest capital.

The Bottom Line On Eonmetall Group Berhad's ROCE

In summary, it's great to see that Eonmetall Group Berhad can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Astute investors may have an opportunity here because the stock has declined 34% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing: We've identified 4 warning signs with Eonmetall Group Berhad (at least 2 which don't sit too well with us) , and understanding them would certainly be useful.

While Eonmetall Group 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.

Valuation is complex, but we're helping make it simple.

Find out whether Eonmetall Group Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.