Success Transformer Corporation Berhad (KLSE:SUCCESS) Is Experiencing Growth In Returns On Capital
What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. So on that note, Success Transformer Corporation Berhad (KLSE:SUCCESS) looks quite promising in regards to its trends of return on capital.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Success Transformer Corporation Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.069 = RM29m ÷ (RM444m - RM23m) (Based on the trailing twelve months to March 2024).
Thus, Success Transformer Corporation Berhad has an ROCE of 6.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.5%.
Check out our latest analysis for Success Transformer Corporation Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Success Transformer Corporation Berhad's ROCE against it's prior returns. If you'd like to look at how Success Transformer Corporation Berhad has performed in the past in other metrics, you can view this free graph of Success Transformer Corporation Berhad's past earnings, revenue and cash flow.
What The Trend Of ROCE Can Tell Us
Success Transformer Corporation 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 99% 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
One more thing to note, Success Transformer Corporation Berhad has decreased current liabilities to 5.3% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.
The Bottom Line On Success Transformer Corporation Berhad's ROCE
To bring it all together, Success Transformer Corporation Berhad has done well to increase the returns it's generating from its capital employed. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 40% return over the last five years. In light of that, we think it's worth looking further into this stock because if Success Transformer Corporation Berhad can keep these trends up, it could have a bright future ahead.
On a separate note, we've found 2 warning signs for Success Transformer Corporation Berhad you'll probably want to know about.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com