Puncak Niaga Holdings Berhad's (KLSE:PUNCAK) Returns On Capital Are Heading Higher

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Puncak Niaga Holdings Berhad (KLSE:PUNCAK) so let's look a bit deeper.

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Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Puncak Niaga Holdings Berhad, this is the formula:

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

0.045 = RM101m ÷ (RM2.7b - RM489m) (Based on the trailing twelve months to March 2025).

Thus, Puncak Niaga Holdings Berhad has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Water Utilities industry average of 7.1%.

Check out our latest analysis for Puncak Niaga Holdings Berhad

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

How Are Returns Trending?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. 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 103% 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On Puncak Niaga Holdings Berhad's ROCE

To sum it up, Puncak Niaga Holdings Berhad is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 22% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know more about Puncak Niaga Holdings Berhad, we've spotted 3 warning signs, and 2 of them make us uncomfortable.

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.