A Look Into SKP Resources Bhd's (KLSE:SKPRES) Impressive Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of SKP Resources Bhd (KLSE:SKPRES) looks attractive right now, so lets see what the trend of returns can tell us.

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 SKP Resources Bhd is:

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

0.25 = RM186m ÷ (RM1.1b - RM394m) (Based on the trailing twelve months to June 2021).

Therefore, SKP Resources Bhd has an ROCE of 25%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

Check out our latest analysis for SKP Resources Bhd

Above you can see how the current ROCE for SKP Resources Bhd compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for SKP Resources Bhd.

So How Is SKP Resources Bhd's ROCE Trending?

We'd be pretty happy with returns on capital like SKP Resources Bhd. The company has consistently earned 25% for the last five years, and the capital employed within the business has risen 83% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If SKP Resources Bhd can keep this up, we'd be very optimistic about its future.

What We Can Learn From SKP Resources Bhd's ROCE

In short, we'd argue SKP Resources Bhd has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has done incredibly well with a 112% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a separate note, we've found 1 warning sign for SKP Resources Bhd you'll probably want to know about.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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