MBM Resources Berhad (KLSE:MBMR) Is Doing The Right Things To Multiply Its Share Price

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. So when we looked at MBM Resources Berhad (KLSE:MBMR) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for MBM Resources Berhad:

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

0.00036 = RM766k ÷ (RM2.3b - RM144m) (Based on the trailing twelve months to December 2020).

So, MBM Resources Berhad has an ROCE of 0.04%. In absolute terms, that's a low return and it also under-performs the Retail Distributors industry average of 5.5%.

Check out our latest analysis for MBM Resources Berhad

In the above chart we have measured MBM Resources Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for MBM Resources Berhad.

So How Is MBM Resources Berhad's ROCE Trending?

We're delighted to see that MBM Resources Berhad is reaping rewards from its investments and has now broken into profitability. The company now earns 0.04% on its capital, because five years ago it was incurring losses. While returns have increased, the amount of capital employed by MBM Resources Berhad has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line

To sum it up, MBM Resources Berhad is collecting higher returns from the same amount of capital, and that's impressive. And with a respectable 75% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, MBM Resources Berhad does come with some risks, and we've found 1 warning sign that you should be aware of.

While MBM Resources 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. 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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