Seni Jaya Corporation Berhad (KLSE:SJC) Could Become A Multi-Bagger

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Seni Jaya Corporation Berhad's (KLSE:SJC) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Seni Jaya Corporation Berhad, this is the formula:

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

0.20 = RM16m ÷ (RM102m - RM22m) (Based on the trailing twelve months to December 2023).

Thus, Seni Jaya Corporation Berhad has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 5.5% earned by companies in a similar industry.

Check out 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.

The Trend Of ROCE

Seni Jaya Corporation Berhad has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 20% on its capital. Not only that, but the company is utilizing 50% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

The Bottom Line On Seni Jaya Corporation Berhad's ROCE

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. Since the stock has returned a solid 61% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Seni Jaya Corporation Berhad does have some risks, we noticed 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.

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