Kim Hin Joo (Malaysia) Berhad (KLSE:KHJB) Will Want To Turn Around Its Return Trends

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Kim Hin Joo (Malaysia) Berhad (KLSE:KHJB) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for Kim Hin Joo (Malaysia) Berhad, this is the formula:

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

0.08 = RM7.4m ÷ (RM114m - RM21m) (Based on the trailing twelve months to December 2021).

Therefore, Kim Hin Joo (Malaysia) Berhad has an ROCE of 8.0%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 12%.

See our latest analysis for Kim Hin Joo (Malaysia) Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Kim Hin Joo (Malaysia) Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Kim Hin Joo (Malaysia) Berhad, check out these free graphs here.

What Can We Tell From Kim Hin Joo (Malaysia) Berhad's ROCE Trend?

When we looked at the ROCE trend at Kim Hin Joo (Malaysia) Berhad, we didn't gain much confidence. To be more specific, ROCE has fallen from 27% over the last five years. However it looks like Kim Hin Joo (Malaysia) Berhad might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

In Conclusion...

To conclude, we've found that Kim Hin Joo (Malaysia) Berhad is reinvesting in the business, but returns have been falling. Unsurprisingly then, the total return to shareholders over the last year has been flat. Therefore based on the analysis done in this article, we don't think Kim Hin Joo (Malaysia) Berhad has the makings of a multi-bagger.

On a final note, we found 3 warning signs for Kim Hin Joo (Malaysia) Berhad (1 makes us a bit uncomfortable) you should be aware of.

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.