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

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. In light of that, when we looked at Kim Hin Joo (Malaysia) Berhad (KLSE:KHJB) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Kim Hin Joo (Malaysia) Berhad:

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

0.10 = RM9.4m ÷ (RM109m - RM16m) (Based on the trailing twelve months to September 2022).

Therefore, Kim Hin Joo (Malaysia) Berhad has an ROCE of 10%. In absolute terms, that's a pretty standard return but compared to the Specialty Retail industry average it falls behind.

Check out our latest analysis for Kim Hin Joo (Malaysia) 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 want to delve into the historical earnings, revenue and cash flow of Kim Hin Joo (Malaysia) Berhad, check out these free graphs here.

So How Is Kim Hin Joo (Malaysia) Berhad's ROCE Trending?

On the surface, the trend of ROCE at Kim Hin Joo (Malaysia) Berhad doesn't inspire confidence. To be more specific, ROCE has fallen from 26% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Kim Hin Joo (Malaysia) Berhad's ROCE

While returns have fallen for Kim Hin Joo (Malaysia) Berhad in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. These trends are starting to be recognized by investors since the stock has delivered a 18% gain to shareholders who've held over the last three years. So this stock may still be an appealing investment opportunity, if other fundamentals prove to be sound.

One more thing: We've identified 3 warning signs with Kim Hin Joo (Malaysia) Berhad (at least 1 which can't be ignored) , and understanding them would certainly be useful.

While Kim Hin Joo (Malaysia) 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.