Muda Holdings Berhad (KLSE:MUDA) Shareholders Will Want The ROCE Trajectory To Continue

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Muda Holdings Berhad (KLSE:MUDA) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for Muda Holdings Berhad:

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

0.093 = RM133m ÷ (RM1.9b - RM518m) (Based on the trailing twelve months to December 2020).

So, Muda Holdings Berhad has an ROCE of 9.4%. In absolute terms, that's a low return but it's around the Packaging industry average of 11%.

View our latest analysis for Muda Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Muda Holdings Berhad's ROCE against it's prior returns. If you'd like to look at how Muda Holdings 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. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 9.4%. 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 35%. So we're very much inspired by what we're seeing at Muda Holdings Berhad thanks to its ability to profitably reinvest capital.

The Bottom Line On Muda Holdings Berhad's ROCE

In summary, it's great to see that Muda Holdings Berhad can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Considering the stock has delivered 38% 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 with that in mind, we think the stock deserves further research.

On a separate note, we've found 2 warning signs for Muda Holdings Berhad you'll probably want to know about.

While Muda Holdings 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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