The Trend Of High Returns At Tomei Consolidated Berhad (KLSE:TOMEI) Has Us Very Interested

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Tomei Consolidated Berhad (KLSE:TOMEI) we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Tomei Consolidated Berhad, this is the formula:

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

0.23 = RM102m ÷ (RM656m - RM218m) (Based on the trailing twelve months to December 2022).

Thus, Tomei Consolidated Berhad has an ROCE of 23%. That's a fantastic return and not only that, it outpaces the average of 19% earned by companies in a similar industry.

View our latest analysis for Tomei Consolidated 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're interested in investigating Tomei Consolidated Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Tomei Consolidated Berhad Tell Us?

The trends we've noticed at Tomei Consolidated Berhad are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 23%. The amount of capital employed has increased too, by 110%. So we're very much inspired by what we're seeing at Tomei Consolidated Berhad thanks to its ability to profitably reinvest capital.

One more thing to note, Tomei Consolidated Berhad has decreased current liabilities to 33% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Key Takeaway

All in all, it's terrific to see that Tomei Consolidated Berhad is reaping the rewards from prior investments and is growing its capital base. And a remarkable 122% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Tomei Consolidated Berhad does have some risks, we noticed 4 warning signs (and 2 which are a bit unpleasant) we think you should know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.