YTL Power International Berhad (KLSE:YTLPOWR) 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? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at YTL Power International Berhad (KLSE:YTLPOWR) so let's look a bit deeper.

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

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 YTL Power International Berhad, this is the formula:

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

0.11 = RM5.6b ÷ (RM60b - RM7.4b) (Based on the trailing twelve months to December 2023).

Therefore, YTL Power International Berhad has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Integrated Utilities industry average of 5.2% it's much better.

View our latest analysis for YTL Power International Berhad

In the above chart we have measured YTL Power International Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for YTL Power International Berhad .

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

We like the trends that we're seeing from YTL Power International Berhad. Over the last five years, returns on capital employed have risen substantially to 11%. Basically the business is earning more per dollar of capital invested and in addition to that, 25% 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 Bottom Line

To sum it up, YTL Power International Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 519% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if YTL Power International Berhad can keep these trends up, it could have a bright future ahead.

If you want to continue researching YTL Power International Berhad, you might be interested to know about the 2 warning signs that our analysis has discovered.

While YTL Power International Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.