Malaysian Bulk Carriers Berhad (KLSE:MAYBULK) Is Experiencing Growth In Returns On Capital

What trends should we look for it we want to identify stocks that can 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Malaysian Bulk Carriers Berhad (KLSE:MAYBULK) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Malaysian Bulk Carriers Berhad is:

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

0.03 = RM14m ÷ (RM642m - RM172m) (Based on the trailing twelve months to March 2021).

Therefore, Malaysian Bulk Carriers Berhad has an ROCE of 3.0%. In absolute terms, that's a low return and it also under-performs the Shipping industry average of 5.1%.

Check out our latest analysis for Malaysian Bulk Carriers Berhad

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

So How Is Malaysian Bulk Carriers Berhad's ROCE Trending?

It's great to see that Malaysian Bulk Carriers Berhad has started to generate some pre-tax earnings from prior investments. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 3.0% on their capital employed. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 71%. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

The Key Takeaway

From what we've seen above, Malaysian Bulk Carriers Berhad has managed to increase it's returns on capital all the while reducing it's capital base. Astute investors may have an opportunity here because the stock has declined 15% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

While Malaysian Bulk Carriers Berhad looks impressive, no company is worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MAYBULK is currently trading for a fair price.

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. 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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