SKP Resources Bhd (KLSE:SKPRES) Hasn't Managed To Accelerate Its Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. That's why when we briefly looked at SKP Resources Bhd's (KLSE:SKPRES) ROCE trend, we were pretty happy with what we saw.

We've discovered 1 warning sign about SKP Resources Bhd. View them for free.

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 SKP Resources Bhd:

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

0.14 = RM132m ÷ (RM1.4b - RM418m) (Based on the trailing twelve months to December 2024).

Therefore, SKP Resources Bhd has an ROCE of 14%. That's a relatively normal return on capital, and it's around the 12% generated by the Electronic industry.

View 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 analyst report for SKP Resources Bhd .

What Does the ROCE Trend For SKP Resources Bhd Tell Us?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 14% and the business has deployed 55% more capital into its operations. 14% is a pretty standard return, and it provides some comfort knowing that SKP Resources Bhd has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 30% of total assets, is good to see from a business owner's perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

The Bottom Line

To sum it up, SKP Resources Bhd has simply been reinvesting capital steadily, at those decent rates of return. However, over the last five years, the stock has only delivered a 33% return to shareholders who held over that period. So to determine if SKP Resources Bhd is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

On a final note, we've found 1 warning sign for SKP Resources Bhd that we think you should be aware of.

While SKP Resources Bhd may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.