PBA Holdings Bhd (KLSE:PBA) Shareholders Will Want The ROCE Trajectory To Continue

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in PBA Holdings Bhd's (KLSE:PBA) returns on capital, so let's have a look.

Understanding 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 PBA Holdings Bhd:

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

0.099 = RM147m ÷ (RM1.8b - RM298m) (Based on the trailing twelve months to December 2024).

Therefore, PBA Holdings Bhd has an ROCE of 9.9%. On its own that's a low return, but compared to the average of 7.5% generated by the Water Utilities industry, it's much better.

Check out our latest analysis for PBA Holdings Bhd

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

How Are Returns Trending?

PBA Holdings Bhd's ROCE growth is quite impressive. 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 201% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

Our Take On PBA Holdings Bhd's ROCE

To bring it all together, PBA Holdings Bhd has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 212% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if PBA Holdings Bhd can keep these trends up, it could have a bright future ahead.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for PBA that compares the share price and estimated value.

While PBA Holdings Bhd isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.