Returns At Timberwell Berhad (KLSE:TIMWELL) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at Timberwell Berhad (KLSE:TIMWELL) and its trend of ROCE, we really liked what we saw.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Timberwell Berhad, this is the formula:

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

0.081 = RM5.5m ÷ (RM75m - RM6.8m) (Based on the trailing twelve months to June 2022).

So, Timberwell Berhad has an ROCE of 8.1%. In absolute terms, that's a low return, but it's much better than the Forestry industry average of 5.9%.

See our latest analysis for Timberwell 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 want to delve into the historical earnings, revenue and cash flow of Timberwell Berhad, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

Timberwell Berhad has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 8.1% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Timberwell Berhad is utilizing 55% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

Long story short, we're delighted to see that Timberwell Berhad's reinvestment activities have paid off and the company is now profitable. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 4 warning signs for Timberwell Berhad (2 shouldn't be ignored) you should be aware of.

While Timberwell 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.