Censof Holdings Berhad (KLSE:CENSOF) Is Investing Its Capital With Increasing Efficiency

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at the ROCE trend of Censof Holdings Berhad (KLSE:CENSOF) we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Censof Holdings Berhad, this is the formula:

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

0.27 = RM24m ÷ (RM108m - RM19m) (Based on the trailing twelve months to June 2021).

Thus, Censof Holdings Berhad has an ROCE of 27%. That's a fantastic return and not only that, it outpaces the average of 17% earned by companies in a similar industry.

See our latest analysis for Censof Holdings 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 Censof Holdings Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Censof Holdings Berhad's ROCE Trend?

We're pretty happy with how the ROCE has been trending at Censof Holdings Berhad. The data shows that returns on capital have increased by 100% over the trailing five years. The company is now earning RM0.3 per dollar of capital employed. Interestingly, the business may be becoming more efficient because it's applying 75% less capital than it was five years ago. Censof Holdings Berhad may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In Conclusion...

In the end, Censof Holdings Berhad has proven it's capital allocation skills are good with those higher returns from less amount of capital. And with a respectable 72% 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. In light of that, we think it's worth looking further into this stock because if Censof Holdings Berhad can keep these trends up, it could have a bright future ahead.

Like most companies, Censof Holdings Berhad does come with some risks, and we've found 4 warning signs that 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.
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