Hiap Teck Venture Berhad (KLSE:HIAPTEK) Is Looking To Continue Growing Its Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Hiap Teck Venture Berhad (KLSE:HIAPTEK) looks quite promising in regards to its trends of return on capital.

Understanding 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. To calculate this metric for Hiap Teck Venture Berhad, this is the formula:

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

0.062 = RM58m ÷ (RM1.4b - RM486m) (Based on the trailing twelve months to January 2021).

Thus, Hiap Teck Venture Berhad has an ROCE of 6.2%. In absolute terms, that's a low return, but it's much better than the Metals and Mining industry average of 5.0%.

Check out our latest analysis for Hiap Teck Venture Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Hiap Teck Venture Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Hiap Teck Venture Berhad Tell Us?

Hiap Teck Venture Berhad has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 209% in that same time. 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.

Our Take On Hiap Teck Venture Berhad's ROCE

In summary, we're delighted to see that Hiap Teck Venture Berhad has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 42% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to know some of the risks facing Hiap Teck Venture Berhad we've found 3 warning signs (1 is concerning!) that you should be aware of before investing here.

While Hiap Teck Venture 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.

If you decide to trade Hiap Teck Venture Berhad, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.