Returns On Capital Are Showing Encouraging Signs At Melewar Industrial Group Berhad (KLSE:MELEWAR)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Melewar Industrial Group Berhad (KLSE:MELEWAR) 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. To calculate this metric for Melewar Industrial Group Berhad, this is the formula:

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

0.022 = RM14m ÷ (RM854m - RM240m) (Based on the trailing twelve months to March 2024).

Thus, Melewar Industrial Group Berhad has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Metals and Mining industry average of 6.5%.

See our latest analysis for Melewar Industrial Group Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Melewar Industrial Group Berhad's ROCE against it's prior returns. If you'd like to look at how Melewar Industrial Group Berhad has performed in the past in other metrics, you can view this free graph of Melewar Industrial Group Berhad's past earnings, revenue and cash flow.

The Trend Of ROCE

We're delighted to see that Melewar Industrial Group 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 2.2% which is a sight for sore eyes. Not only that, but the company is utilizing 43% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line

Long story short, we're delighted to see that Melewar Industrial Group Berhad's reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Melewar Industrial Group Berhad can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Melewar Industrial Group Berhad, we've spotted 2 warning signs, and 1 of them is significant.

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.

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