Yahoo Finance APB Resources Berhad's (KLSE:APB) Returns On Capital Are Heading Higher
There are a few key trends to look for if we want to identify the next multi-bagger. 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 APB Resources Berhad (KLSE:APB) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
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. Analysts use this formula to calculate it for APB Resources Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.034 = RM5.5m ÷ (RM179m - RM16m) (Based on the trailing twelve months to September 2023).
Thus, APB Resources Berhad has an ROCE of 3.4%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 8.1%.
Check out our latest analysis for APB Resources Berhad
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of APB Resources Berhad, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
APB Resources Berhad has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 3.4% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.
The Bottom Line
To bring it all together, APB Resources Berhad has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 252% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if APB Resources Berhad can keep these trends up, it could have a bright future ahead.
APB Resources Berhad does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those don't sit too well with us...
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
