Returns At YTL Power International Berhad (KLSE:YTLPOWR) Are On The Way Up

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. So when we looked at YTL Power International Berhad (KLSE:YTLPOWR) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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 YTL Power International Berhad, this is the formula:

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

0.10 = RM5.7b ÷ (RM62b - RM7.1b) (Based on the trailing twelve months to March 2024).

Thus, YTL Power International Berhad has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Integrated Utilities industry average of 5.6% it's much better.

See our latest analysis for YTL Power International Berhad

Above you can see how the current ROCE for YTL Power International Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering YTL Power International Berhad for free.

What Can We Tell From YTL Power International Berhad's ROCE Trend?

The trends we've noticed at YTL Power International Berhad are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 10%. Basically the business is earning more per dollar of capital invested and in addition to that, 29% more capital is being employed now too. So we're very much inspired by what we're seeing at YTL Power International Berhad thanks to its ability to profitably reinvest capital.

The Key Takeaway

In summary, it's great to see that YTL Power International Berhad can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

While YTL Power International Berhad 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com