Returns On Capital Are Showing Encouraging Signs At UCrest Berhad (KLSE:UCREST)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. 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 UCrest Berhad's (KLSE:UCREST) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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. The formula for this calculation on UCrest Berhad is:

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

0.15 = RM9.1m ÷ (RM66m - RM6.6m) (Based on the trailing twelve months to May 2021).

Therefore, UCrest Berhad has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 6.8% generated by the Communications industry.

See our latest analysis for UCrest Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for UCrest Berhad's ROCE against it's prior returns. If you're interested in investigating UCrest Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

The trends we've noticed at UCrest Berhad are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 15%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 357%. So we're very much inspired by what we're seeing at UCrest Berhad thanks to its ability to profitably reinvest capital.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what UCrest Berhad has. And a remarkable 373% total return over the last five years tells us that investors are expecting more good things to come in the future. 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 5 warning signs for UCrest Berhad (of which 2 are a bit unpleasant!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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