Investors Will Want KYM Holdings Bhd's (KLSE:KYM) Growth In ROCE To Persist

By
Simply Wall St
Published
April 20, 2022
KLSE:KYM
Source: Shutterstock

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. 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 KYM Holdings Bhd (KLSE:KYM) so let's look a bit deeper.

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. The formula for this calculation on KYM Holdings Bhd is:

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

0.039 = RM4.4m ÷ (RM166m - RM53m) (Based on the trailing twelve months to January 2022).

Thus, KYM Holdings Bhd has an ROCE of 3.9%. Ultimately, that's a low return and it under-performs the Packaging industry average of 9.8%.

Check out our latest analysis for KYM Holdings Bhd

roce
KLSE:KYM Return on Capital Employed April 20th 2022

Historical performance is a great place to start when researching a stock so above you can see the gauge for KYM Holdings Bhd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of KYM Holdings Bhd, check out these free graphs here.

The Trend Of ROCE

We're delighted to see that KYM Holdings Bhd is reaping rewards from its investments and has now broken into profitability. The company now earns 3.9% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. 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. Because in the end, a business can only get so efficient.

What We Can Learn From KYM Holdings Bhd's ROCE

In summary, we're delighted to see that KYM Holdings Bhd has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Considering the stock has delivered 2.0% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So with that in mind, we think the stock deserves further research.

One more thing to note, we've identified 2 warning signs with KYM Holdings Bhd and understanding these should be part of your investment process.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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