Returns At Asia Brands Berhad (KLSE:ASIABRN) Are On The Way Up

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. 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 Asia Brands Berhad (KLSE:ASIABRN) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Asia Brands Berhad, this is the formula:

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

0.087 = RM21m ÷ (RM299m - RM54m) (Based on the trailing twelve months to June 2021).

So, Asia Brands Berhad has an ROCE of 8.7%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.3%.

See our latest analysis for Asia Brands Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Asia Brands Berhad's ROCE against it's prior returns. If you're interested in investigating Asia Brands Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

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 8.7% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Asia Brands Berhad is utilizing 31% 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.

On a related note, the company's ratio of current liabilities to total assets has decreased to 18%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Asia Brands Berhad has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Asia Brands Berhad's ROCE

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. And since the stock has fallen 33% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

Like most companies, Asia Brands Berhad does come with some risks, and we've found 3 warning signs that you should be aware of.

While Asia Brands Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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