ILB Group Berhad (KLSE:ILB) Is Experiencing Growth In Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in ILB Group Berhad's (KLSE:ILB) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for ILB Group Berhad:

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

0.0054 = RM1.4m ÷ (RM277m - RM14m) (Based on the trailing twelve months to June 2023).

Thus, ILB Group Berhad has an ROCE of 0.5%. Ultimately, that's a low return and it under-performs the Logistics industry average of 4.1%.

See our latest analysis for ILB Group Berhad

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

What Does the ROCE Trend For ILB Group Berhad Tell Us?

It's great to see that ILB Group Berhad has started to generate some pre-tax earnings from prior investments. While the business is profitable now, it used to be incurring losses on invested capital five years ago. Additionally, the business is utilizing 38% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

What We Can Learn From ILB Group Berhad's ROCE

From what we've seen above, ILB Group Berhad has managed to increase it's returns on capital all the while reducing it's capital base. Considering the stock has delivered 34% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know more about ILB Group Berhad, we've spotted 2 warning signs, and 1 of them can't be ignored.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.