Shareholders Would Enjoy A Repeat Of Cuscapi Berhad's (KLSE:CUSCAPI) Recent Growth In Returns

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Cuscapi Berhad's (KLSE:CUSCAPI) returns on capital, so let's have a look.

Understanding 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. The formula for this calculation on Cuscapi Berhad is:

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

0.26 = RM18m ÷ (RM81m - RM12m) (Based on the trailing twelve months to September 2024).

Thus, Cuscapi Berhad has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

Check out our latest analysis for Cuscapi 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 Cuscapi Berhad's past further, check out this free graph covering Cuscapi Berhad's past earnings, revenue and cash flow.

What Does the ROCE Trend For Cuscapi Berhad Tell Us?

It's great to see that Cuscapi Berhad has started to generate some pre-tax earnings from prior investments. While the business is profitable now, it used to be incurring losses on invested capital five years ago. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 28%. Cuscapi Berhad could be selling under-performing assets since the ROCE is improving.

Our Take On Cuscapi Berhad's ROCE

In the end, Cuscapi Berhad has proven it's capital allocation skills are good with those higher returns from less amount of capital. Considering the stock has delivered 27% 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 with that in mind, we think the stock deserves further research.

One final note, you should learn about the 3 warning signs we've spotted with Cuscapi Berhad (including 1 which makes us a bit uncomfortable) .

Cuscapi Berhad is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.