Mega First Corporation Berhad (KLSE:MFCB) Is Experiencing Growth In Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. 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 Mega First Corporation Berhad's (KLSE:MFCB) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Mega First Corporation Berhad:

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

0.14 = RM592m ÷ (RM5.0b - RM792m) (Based on the trailing twelve months to June 2024).

Therefore, Mega First Corporation Berhad has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.2% generated by the Renewable Energy industry.

See our latest analysis for Mega First Corporation Berhad

Above you can see how the current ROCE for Mega First Corporation Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Mega First Corporation Berhad .

What Can We Tell From Mega First Corporation Berhad's ROCE Trend?

We like the trends that we're seeing from Mega First Corporation Berhad. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. The amount of capital employed has increased too, by 148%. So we're very much inspired by what we're seeing at Mega First Corporation Berhad thanks to its ability to profitably reinvest capital.

One more thing to note, Mega First Corporation Berhad has decreased current liabilities to 16% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Key Takeaway

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 Mega First Corporation Berhad has. And a remarkable 109% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a final note, we've found 1 warning sign for Mega First Corporation Berhad that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.