Lion Industries Corporation Berhad (KLSE:LIONIND) Is Looking To Continue Growing Its Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Lion Industries Corporation Berhad (KLSE:LIONIND) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Lion Industries Corporation Berhad, this is the formula:

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

0.0022 = RM5.3m ÷ (RM3.5b - RM1.1b) (Based on the trailing twelve months to December 2021).

Therefore, Lion Industries Corporation Berhad has an ROCE of 0.2%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 13%.

Our analysis indicates that LIONIND is potentially undervalued!

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

How Are Returns Trending?

We're delighted to see that Lion Industries Corporation Berhad is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.2% on its capital. Not only that, but the company is utilizing 26% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

Our Take On Lion Industries Corporation Berhad's ROCE

In summary, it's great to see that Lion Industries Corporation Berhad has managed to break into profitability and is continuing to reinvest in its business. And since the stock has dived 76% over the last five years, there may be other factors affecting the company's prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

One final note, you should learn about the 2 warning signs we've spotted with Lion Industries Corporation Berhad (including 1 which can't be ignored) .

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.