Returns At OpenSys (M) Berhad (KLSE:OPENSYS) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, OpenSys (M) Berhad (KLSE:OPENSYS) looks quite promising in regards to its trends of return on capital.

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 OpenSys (M) Berhad:

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

0.18 = RM16m ÷ (RM106m - RM21m) (Based on the trailing twelve months to June 2021).

Therefore, OpenSys (M) Berhad has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Tech industry average of 10% it's much better.

Check out our latest analysis for OpenSys (M) 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 OpenSys (M) Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From OpenSys (M) Berhad's ROCE Trend?

We like the trends that we're seeing from OpenSys (M) Berhad. The data shows that returns on capital have increased substantially over the last five years to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 46% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On OpenSys (M) Berhad's ROCE

To sum it up, OpenSys (M) Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. 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.

One more thing to note, we've identified 2 warning signs with OpenSys (M) Berhad and understanding these should be part of your investment process.

While OpenSys (M) Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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