Investors Will Want Citra Nusa Holdings Berhad's (KLSE:CNH) Growth In ROCE To Persist

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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 on that note, Citra Nusa Holdings Berhad (KLSE:CNH) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Citra Nusa Holdings Berhad, this is the formula:

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

0.0041 = RM295k ÷ (RM85m - RM13m) (Based on the trailing twelve months to September 2022).

Therefore, Citra Nusa Holdings Berhad has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Retail Distributors industry average of 9.4%.

See our latest analysis for Citra Nusa Holdings Berhad

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

The Trend Of ROCE

We're delighted to see that Citra Nusa Holdings Berhad is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 0.4%, which is always encouraging. While returns have increased, the amount of capital employed by Citra Nusa Holdings Berhad has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

Our Take On Citra Nusa Holdings Berhad's ROCE

To sum it up, Citra Nusa Holdings Berhad is collecting higher returns from the same amount of capital, and that's impressive. Astute investors may have an opportunity here because the stock has declined 23% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

One final note, you should learn about the 2 warning signs we've spotted with Citra Nusa Holdings Berhad (including 1 which is a bit concerning) .

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.