There's Been No Shortage Of Growth Recently For Golden Pharos Berhad's (KLSE:GPHAROS) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. So on that note, Golden Pharos Berhad (KLSE:GPHAROS) looks quite promising in regards to its trends of return on capital.

What Is 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. The formula for this calculation on Golden Pharos Berhad is:

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

0.18 = RM15m ÷ (RM106m - RM18m) (Based on the trailing twelve months to September 2023).

Thus, Golden Pharos Berhad has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 4.9% generated by the Forestry industry.

Check out our latest analysis for Golden Pharos Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Golden Pharos Berhad's ROCE against it's prior returns. If you'd like to look at how Golden Pharos Berhad has performed in the past in other metrics, you can view this free graph of Golden Pharos Berhad's past earnings, revenue and cash flow.

How Are Returns Trending?

Golden Pharos Berhad is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 144% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Golden Pharos Berhad's ROCE

As discussed above, Golden Pharos Berhad appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And a remarkable 199% 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.

One final note, you should learn about the 3 warning signs we've spotted with Golden Pharos 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.