If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. 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, KYM Holdings Bhd (KLSE:KYM) 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 KYM Holdings Bhd is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0095 = RM1.2m ÷ (RM156m - RM25m) (Based on the trailing twelve months to July 2025).
Thus, KYM Holdings Bhd has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Packaging industry average of 5.7%.
View our latest analysis for KYM Holdings Bhd
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'd like to look at how KYM Holdings Bhd has performed in the past in other metrics, you can view this free graph of KYM Holdings Bhd's past earnings, revenue and cash flow.
How Are Returns Trending?
We're delighted to see that KYM Holdings Bhd 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 0.9%, which is always encouraging. 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. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.
On a related note, the company's ratio of current liabilities to total assets has decreased to 16%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.
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. Astute investors may have an opportunity here because the stock has declined 21% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for KYM Holdings Bhd (of which 1 is potentially serious!) that you should know about.
While KYM Holdings Bhd 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.
Valuation is complex, but we're here to simplify it.
Discover if KYM Holdings Bhd might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.