Many Would Be Envious Of Autocount Dotcom Berhad's (KLSE:ADB) Excellent Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. That's why when we briefly looked at Autocount Dotcom Berhad's (KLSE:ADB) ROCE trend, we were very happy with what we saw.

What Is 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 Autocount Dotcom Berhad:

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

0.38 = RM22m ÷ (RM70m - RM13m) (Based on the trailing twelve months to September 2024).

So, Autocount Dotcom Berhad has an ROCE of 38%. In absolute terms that's a great return and it's even better than the Software industry average of 12%.

Check out our latest analysis for Autocount Dotcom 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'd like to look at how Autocount Dotcom Berhad has performed in the past in other metrics, you can view this free graph of Autocount Dotcom Berhad's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

It's hard not to be impressed by Autocount Dotcom Berhad's returns on capital. The company has consistently earned 38% for the last four years, and the capital employed within the business has risen 270% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Autocount Dotcom Berhad can keep this up, we'd be very optimistic about its future.

One more thing to note, even though ROCE has remained relatively flat over the last four years, the reduction in current liabilities to 19% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

What We Can Learn From Autocount Dotcom Berhad's ROCE

In the end, the company has proven it can reinvest it's capital at high rates of returns, which you'll remember is a trait of a multi-bagger. And the stock has followed suit returning a meaningful 45% to shareholders over the last year. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

On a final note, we've found 1 warning sign for Autocount Dotcom Berhad that we think you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high 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.