Why The 22% Return On Capital At XOX Berhad (KLSE:XOX) Should Have Your Attention

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. With that in mind, the ROCE of XOX Berhad (KLSE:XOX) looks great, so lets see what the trend can tell us.

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 XOX Berhad:

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

0.22 = RM55m ÷ (RM378m - RM131m) (Based on the trailing twelve months to March 2023).

So, XOX Berhad has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Wireless Telecom industry average of 9.4%.

See our latest analysis for XOX 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 XOX Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is XOX Berhad's ROCE Trending?

Investors would be pleased with what's happening at XOX Berhad. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 22%. 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 95%. 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.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 35% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Keep an eye out for future increases because when the ratio of current liabilities to total assets gets particularly high, this can introduce some new risks for the business.

The Bottom Line On XOX Berhad's ROCE

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 XOX Berhad has. However the stock is down a substantial 79% in the last five years so there could be other areas of the business hurting its prospects. Still, it's worth doing some further research to see if the trends will continue into the future.

One final note, you should learn about the 3 warning signs we've spotted with XOX Berhad (including 2 which are potentially serious) .

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.

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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.