We Like These Underlying Return On Capital Trends At New Hoong Fatt Holdings Berhad (KLSE:NHFATT)
Did you know there are some financial metrics that can provide clues of a potential 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in New Hoong Fatt Holdings Berhad's (KLSE:NHFATT) returns on capital, so let's have a look.
Understanding Return On Capital Employed (ROCE)
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 New Hoong Fatt Holdings Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.084 = RM52m ÷ (RM640m - RM19m) (Based on the trailing twelve months to March 2024).
Therefore, New Hoong Fatt Holdings Berhad has an ROCE of 8.4%. In absolute terms, that's a low return but it's around the Auto Components industry average of 10%.
Check out our latest analysis for New Hoong Fatt Holdings 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'd like to look at how New Hoong Fatt Holdings Berhad has performed in the past in other metrics, you can view this free graph of New Hoong Fatt Holdings Berhad's past earnings, revenue and cash flow.
So How Is New Hoong Fatt Holdings Berhad's ROCE Trending?
Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 8.4%. Basically the business is earning more per dollar of capital invested and in addition to that, 22% 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
All in all, it's terrific to see that New Hoong Fatt Holdings Berhad is reaping the rewards from prior investments and is growing its capital base. And with a respectable 77% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if New Hoong Fatt Holdings Berhad can keep these trends up, it could have a bright future ahead.
One more thing to note, we've identified 2 warning signs with New Hoong Fatt Holdings Berhad and understanding them should be part of your investment process.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
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