We Like These Underlying Return On Capital Trends At Topmix Berhad (KLSE:TOPMIX)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. Speaking of which, we noticed some great changes in Topmix Berhad's (KLSE:TOPMIX) returns on capital, so let's have a look.

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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. The formula for this calculation on Topmix Berhad is:

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

0.19 = RM18m ÷ (RM109m - RM14m) (Based on the trailing twelve months to December 2024).

Therefore, Topmix Berhad has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 2.4% generated by the Forestry industry.

Check out our latest analysis for Topmix Berhad

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

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at Topmix Berhad. The data shows that returns on capital have increased substantially over the last four years to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 215% more capital is being employed now too. So we're very much inspired by what we're seeing at Topmix Berhad thanks to its ability to profitably reinvest capital.

Our Take On Topmix Berhad's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Topmix Berhad has. And since the stock has fallen 29% over the last year, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Topmix Berhad (of which 1 makes us a bit uncomfortable!) that you should know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.