Returns Are Gaining Momentum At Asia Brands Berhad (KLSE:ASIABRN)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Asia Brands Berhad (KLSE:ASIABRN) 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 Asia Brands Berhad:

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

0.051 = RM13m ÷ (RM322m - RM65m) (Based on the trailing twelve months to December 2023).

So, Asia Brands Berhad has an ROCE of 5.1%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.4%.

View our latest analysis for Asia Brands 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'd like to look at how Asia Brands Berhad has performed in the past in other metrics, you can view this free graph of Asia Brands Berhad's past earnings, revenue and cash flow.

How Are Returns Trending?

Asia Brands 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 5.1% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Asia Brands Berhad is utilizing 73% more capital than it was five years ago. 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.

One more thing to note, Asia Brands Berhad has decreased current liabilities to 20% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

Overall, Asia Brands Berhad gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Considering the stock has delivered 6.4% 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 exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know about the risks facing Asia Brands Berhad, we've discovered 4 warning signs that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.