The Return Trends At WCE Holdings Berhad (KLSE:WCEHB) Look Promising

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at WCE Holdings Berhad (KLSE:WCEHB) and its trend of ROCE, we really liked what we saw.

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. To calculate this metric for WCE Holdings Berhad, this is the formula:

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

0.00049 = RM3.4m ÷ (RM7.4b - RM379m) (Based on the trailing twelve months to June 2024).

Thus, WCE Holdings Berhad has an ROCE of 0.05%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 9.4%.

Check out our latest analysis for WCE Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for WCE Holdings Berhad's ROCE against it's prior returns. If you'd like to look at how WCE Holdings Berhad has performed in the past in other metrics, you can view this free graph of WCE Holdings Berhad's past earnings, revenue and cash flow.

So How Is WCE Holdings Berhad's ROCE Trending?

WCE Holdings Berhad has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 0.05% on its capital. In addition to that, WCE Holdings Berhad is employing 56% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In Conclusion...

To the delight of most shareholders, WCE Holdings Berhad has now broken into profitability. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 64% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

WCE Holdings Berhad does have some risks though, and we've spotted 1 warning sign for WCE Holdings Berhad that you might be interested in.

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.