Returns Are Gaining Momentum At Lingkaran Trans Kota Holdings Berhad (KLSE:LITRAK)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Lingkaran Trans Kota Holdings Berhad (KLSE:LITRAK) so let's look a bit deeper.

What is 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. Analysts use this formula to calculate it for Lingkaran Trans Kota Holdings Berhad:

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

0.16 = RM290m ÷ (RM2.0b - RM220m) (Based on the trailing twelve months to December 2020).

Therefore, Lingkaran Trans Kota Holdings Berhad has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 6.2% generated by the Infrastructure industry.

See our latest analysis for Lingkaran Trans Kota Holdings Berhad

In the above chart we have measured Lingkaran Trans Kota Holdings Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Lingkaran Trans Kota Holdings Berhad here for free.

What Can We Tell From Lingkaran Trans Kota Holdings Berhad's ROCE Trend?

Lingkaran Trans Kota Holdings Berhad has not disappointed with their ROCE growth. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 28% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Key Takeaway

To bring it all together, Lingkaran Trans Kota Holdings Berhad has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 12% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we've found 2 warning signs for Lingkaran Trans Kota Holdings Berhad that we think you should be aware of.

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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