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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Kein Hing International Berhad (KLSE:KEINHIN) so let's look a bit deeper.
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. Analysts use this formula to calculate it for Kein Hing International Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = RM36m ÷ (RM258m - RM64m) (Based on the trailing twelve months to January 2023).
So, Kein Hing International Berhad has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 11% it's much better.
See our latest analysis for Kein Hing International Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Kein Hing International Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Kein Hing International Berhad, check out these free graphs here.
What Does the ROCE Trend For Kein Hing International Berhad Tell Us?
The trends we've noticed at Kein Hing International Berhad are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 29% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
The Bottom Line
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Kein Hing International Berhad has. Since the stock has returned a staggering 210% to shareholders over the last five years, it looks like investors are recognizing these changes. 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.
On a separate note, we've found 2 warning signs for Kein Hing International Berhad you'll probably want to know about.