There's Been No Shortage Of Growth Recently For Supreme Consolidated Resources Berhad's (KLSE:SUPREME) Returns On Capital
There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. So on that note, Supreme Consolidated Resources Berhad (KLSE:SUPREME) looks quite promising in regards to its trends of return on capital.
What Is 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. The formula for this calculation on Supreme Consolidated Resources Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = RM12m ÷ (RM139m - RM49m) (Based on the trailing twelve months to September 2022).
Thus, Supreme Consolidated Resources Berhad has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Consumer Retailing industry.
View our latest analysis for Supreme Consolidated Resources Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Supreme Consolidated Resources Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Supreme Consolidated Resources Berhad, check out these free graphs here.
What Does the ROCE Trend For Supreme Consolidated Resources Berhad Tell Us?
Investors would be pleased with what's happening at Supreme Consolidated Resources Berhad. The data shows that returns on capital have increased substantially over the last five years to 14%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 64%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Bottom Line
To sum it up, Supreme Consolidated Resources Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has only returned 16% to shareholders over the last three years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.
One more thing: We've identified 3 warning signs with Supreme Consolidated Resources Berhad (at least 1 which doesn't sit too well with us) , and understanding these would certainly be useful.
While Supreme Consolidated Resources 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.
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