The Trend Of High Returns At Censof Holdings Berhad (KLSE:CENSOF) Has Us Very Interested

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. And in light of that, the trends we're seeing at Censof Holdings Berhad's (KLSE:CENSOF) look very promising so lets take a look.

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. Analysts use this formula to calculate it for Censof Holdings Berhad:

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

0.24 = RM19m ÷ (RM99m - RM21m) (Based on the trailing twelve months to December 2020).

So, Censof Holdings Berhad has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 8.1% earned by companies in a similar industry.

Check out 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 The Trend Of ROCE Can Tell Us

We're pretty happy with how the ROCE has been trending at Censof Holdings Berhad. We found that the returns on capital employed over the last five years have risen by 84%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Censof Holdings Berhad appears to been achieving more with less, since the business is using 71% less capital to run its operation. 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.

Our Take On Censof Holdings Berhad's ROCE

From what we've seen above, Censof Holdings Berhad has managed to increase it's returns on capital all the while reducing it's capital base. Considering the stock has delivered 17% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know more about Censof Holdings Berhad, we've spotted 4 warning signs, and 1 of them is a bit concerning.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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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