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There are a few key trends to look for if we want to identify the next multi-bagger. 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. So when we looked at CB Industrial Product Holding Berhad (KLSE:CBIP) and its trend of ROCE, we really liked what we saw.
If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on CB Industrial Product Holding Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.078 = RM80m ÷ (RM1.3b – RM248m) (Based on the trailing twelve months to June 2024).
So, CB Industrial Product Holding Berhad has an ROCE of 7.8%. On its own that’s a low return on capital but it’s in line with the industry’s average returns of 7.9%.
See our latest analysis for CB Industrial Product Holding Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for CB Industrial Product Holding Berhad’s ROCE against it’s prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of CB Industrial Product Holding Berhad.
CB Industrial Product Holding Berhad is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 109% whilst employing roughly the same amount of capital. So it’s likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn’t changed considerably. On that front, things are looking good so it’s worth exploring what management has said about growth plans going forward.
To bring it all together, CB Industrial Product Holding Berhad has done well to increase the returns it’s generating from its capital employed. Since the stock has returned a solid 83% to shareholders over the last five years, it’s fair to say investors are beginning to recognize these changes. In light of that, we think it’s worth looking further into this stock because if CB Industrial Product Holding Berhad can keep these trends up, it could have a bright future ahead.