Will the Promising Trends At Mentiga Corporation Berhad (KLSE:MENTIGA) Continue?

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. 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, Mentiga Corporation Berhad (KLSE:MENTIGA) looks quite promising in regards to its trends of return on capital.

What is 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 Mentiga Corporation Berhad, this is the formula:

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

0.039 = RM9.4m ÷ (RM262m - RM23m) (Based on the trailing twelve months to September 2020).

So, Mentiga Corporation Berhad has an ROCE of 3.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 3.7%.

See our latest analysis for Mentiga Corporation Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Mentiga Corporation Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 3.9%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 79%. So we're very much inspired by what we're seeing at Mentiga Corporation Berhad thanks to its ability to profitably reinvest capital.

The Bottom Line On Mentiga Corporation Berhad's ROCE

All in all, it's terrific to see that Mentiga Corporation Berhad is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 1.7% 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 exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

On a separate note, we've found 4 warning signs for Mentiga Corporation Berhad you'll probably want to know about.

While Mentiga Corporation 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. 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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