Returns Are Gaining Momentum At Karyon Industries Berhad (KLSE:KARYON)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Speaking of which, we noticed some great changes in Karyon Industries Berhad's (KLSE:KARYON) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Karyon Industries Berhad:

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

0.10 = RM12m ÷ (RM143m - RM24m) (Based on the trailing twelve months to December 2021).

Therefore, Karyon Industries Berhad has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Chemicals industry average of 9.4%.

See our latest analysis for Karyon Industries 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 Karyon Industries Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Karyon Industries Berhad's ROCE Trending?

We like the trends that we're seeing from Karyon Industries Berhad. The data shows that returns on capital have increased substantially over the last five years to 10%. Basically the business is earning more per dollar of capital invested and in addition to that, 27% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Karyon Industries Berhad's ROCE

All in all, it's terrific to see that Karyon Industries Berhad is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 15% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you want to know some of the risks facing Karyon Industries Berhad we've found 3 warning signs (2 make us uncomfortable!) that you should be aware of before investing here.

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.