Returns Are Gaining Momentum At Kia Lim Berhad (KLSE:KIALIM)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. So on that note, Kia Lim Berhad (KLSE:KIALIM) looks quite promising in regards to its trends of return on capital.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

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 Kia Lim Berhad is:

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

0.10 = RM6.2m ÷ (RM80m - RM20m) (Based on the trailing twelve months to March 2025).

Thus, Kia Lim Berhad has an ROCE of 10%. On its own, that's a standard return, however it's much better than the 7.7% generated by the Basic Materials industry.

Check out our latest analysis for Kia Lim Berhad

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

So How Is Kia Lim Berhad's ROCE Trending?

We're delighted to see that Kia Lim Berhad is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 10%, which is always encouraging. While returns have increased, the amount of capital employed by Kia Lim Berhad has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

What We Can Learn From Kia Lim Berhad's ROCE

In summary, we're delighted to see that Kia Lim 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 100% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Kia Lim Berhad does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those don't sit too well with us...

While Kia Lim Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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

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.