Returns Are Gaining Momentum At Seni Jaya Corporation Berhad (KLSE:SJC)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 on that note, Seni Jaya Corporation Berhad (KLSE:SJC) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Seni Jaya Corporation Berhad:

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

0.13 = RM13m ÷ (RM123m - RM27m) (Based on the trailing twelve months to September 2024).

Thus, Seni Jaya Corporation Berhad has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Media industry average of 6.4% it's much better.

See our latest analysis for Seni Jaya 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're interested in investigating Seni Jaya Corporation Berhad's past further, check out this free graph covering Seni Jaya Corporation Berhad's past earnings, revenue and cash flow.

How Are Returns Trending?

Seni Jaya Corporation Berhad has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 13% on its capital. Not only that, but the company is utilizing 52% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. The current liabilities has increased to 22% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. It's worth keeping an eye on this because as the percentage of current liabilities to total assets increases, some aspects of risk also increase.

The Key Takeaway

In summary, it's great to see that Seni Jaya Corporation Berhad has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 118% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Seni Jaya Corporation Berhad can keep these trends up, it could have a bright future ahead.

If you'd like to know more about Seni Jaya Corporation Berhad, we've spotted 4 warning signs, and 2 of them can't be ignored.

While Seni Jaya 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.