Should You Invest In My E.G. Services Berhad (KLSE:MYEG)?

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in My E.G. Services Berhad's (KLSE:MYEG) returns on capital, so let's have a look.

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. The formula for this calculation on My E.G. Services Berhad is:

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

0.32 = RM271m ÷ (RM1.0b - RM183m) (Based on the trailing twelve months to December 2019).

Therefore, My E.G. Services Berhad has an ROCE of 32%. In absolute terms that's a great return and it's even better than the IT industry average of 7.8%.

Check out our latest analysis for My E.G. Services Berhad

Above you can see how the current ROCE for My E.G. Services Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From My E.G. Services Berhad's ROCE Trend?

My E.G. Services Berhad is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 32%. Basically the business is earning more per dollar of capital invested and in addition to that, 259% more capital is being employed now too. So we're very much inspired by what we're seeing at My E.G. Services Berhad thanks to its ability to profitably reinvest capital.

The Bottom Line

All in all, it's terrific to see that My E.G. Services Berhad is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 42% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for My E.G. Services Berhad (of which 1 is potentially serious!) that you should know about.

My E.G. Services 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. 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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