Malayan Cement Berhad (KLSE:MCEMENT) Might Have The Makings Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 when we looked at Malayan Cement Berhad (KLSE:MCEMENT) and its trend of ROCE, we really liked what we saw.

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Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Malayan Cement Berhad, this is the formula:

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

0.085 = RM803m ÷ (RM11b - RM1.4b) (Based on the trailing twelve months to December 2024).

So, Malayan Cement Berhad has an ROCE of 8.5%. In absolute terms, that's a low return, but it's much better than the Basic Materials industry average of 7.0%.

Check out our latest analysis for Malayan Cement Berhad

In the above chart we have measured Malayan Cement Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Malayan Cement Berhad .

How Are Returns Trending?

We're delighted to see that Malayan Cement Berhad is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 8.5% which is a sight for sore eyes. Not only that, but the company is utilizing 245% 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 13%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

Our Take On Malayan Cement Berhad's ROCE

In summary, it's great to see that Malayan Cement Berhad has managed to break into profitability and is continuing to reinvest in its business. And with a respectable 79% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Malayan Cement Berhad can keep these trends up, it could have a bright future ahead.

While Malayan Cement Berhad looks impressive, no company is worth an infinite price. The intrinsic value infographic for MCEMENT helps visualize whether it is currently trading for a fair price.

While Malayan Cement Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.