Returns Are Gaining Momentum At Citra Nusa Holdings Berhad (KLSE:CNH)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Citra Nusa Holdings Berhad's (KLSE:CNH) returns on capital, so let's have a look.

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

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. The formula for this calculation on Citra Nusa Holdings Berhad is:

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

0.018 = RM1.3m ÷ (RM83m - RM12m) (Based on the trailing twelve months to March 2021).

Therefore, Citra Nusa Holdings Berhad has an ROCE of 1.8%. In absolute terms, that's a low return and it also under-performs the Retail Distributors industry average of 6.8%.

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.

What Does the ROCE Trend For Citra Nusa Holdings Berhad Tell Us?

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 now it's turned around, earning 1.8% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 21%. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

The Bottom Line

In summary, it's great to see that Citra Nusa Holdings Berhad has been able to turn things around and earn higher returns on lower amounts of capital. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if Citra Nusa Holdings Berhad can keep these trends up, it could have a bright future ahead.

If you want to continue researching Citra Nusa Holdings Berhad, you might be interested to know about the 2 warning signs that our analysis has discovered.

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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