Poh Kong Holdings Berhad's (KLSE:POHKONG) Returns On Capital Are Heading Higher

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. With that in mind, we've noticed some promising trends at Poh Kong Holdings Berhad (KLSE:POHKONG) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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 Poh Kong Holdings Berhad is:

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

0.15 = RM121m ÷ (RM1.1b - RM237m) (Based on the trailing twelve months to October 2023).

Thus, Poh Kong Holdings Berhad has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 7.5% generated by the Luxury industry.

See our latest analysis for Poh Kong Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Poh Kong Holdings Berhad's ROCE against it's prior returns. If you'd like to look at how Poh Kong Holdings Berhad has performed in the past in other metrics, you can view this free graph of Poh Kong Holdings Berhad's past earnings, revenue and cash flow.

How Are Returns Trending?

Poh Kong Holdings Berhad is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 15%. 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 41%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Poh Kong Holdings Berhad's ROCE

All in all, it's terrific to see that Poh Kong Holdings Berhad is reaping the rewards from prior investments and is growing its capital base. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 99% return over the last five years. 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.

If you want to continue researching Poh Kong Holdings Berhad, you might be interested to know about the 2 warning signs that our analysis has discovered.

While Poh Kong Holdings 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.