If we want to find a title that could multiply over the long term, what are the underlying trends to look for? First, we would like to identify a growth to come back on capital employed (ROCE) and at the same time, a based capital employed. Basically, this means that a business has profitable initiatives that it can continue to reinvest in, which is a hallmark of a dialing machine. So on that note, Resintech Berhad (KLSE: RESINTC) looks pretty promising when it comes to its ROI trends.
Return on capital employed (ROCE): what is it?
For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (its return), relative to the capital employed in the company. The formula for this calculation on Resintech Berhad is:
Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.05 = RM9.3m ÷ (RM224m – RM35m) (Based on the last twelve months up to March 2021).
So, Resintech Berhad has a ROCE of 5.0%. In absolute terms, this is a low efficiency and it is also below the machine industry average by 10%.
See our latest review for Resintech Berhad
Historical performance is a great place to start when looking for a stock. So above you can see Resintech Berhad’s ROCE gauge compared to its past yields. If you want to delve into Resintech Berhad’s earnings, income and cash flow history, check out these free graphics here.
What can we say about Resintech Berhad’s ROCE trend?
While in absolute terms it’s not a high ROCE, it is promising to see that it has moved in the right direction. Over the past five years, returns on capital employed have increased significantly to 5.0%. The company actually makes more money per dollar of capital employed, and it should be noted that the amount of capital has also increased, by 36%. We are therefore very inspired by what we see at Resintech Berhad through its ability to reinvest capital profitably.
The key to take away
Overall, it is great to see that Resintech Berhad is reaping the rewards of past investments and increasing its capital base. And with a respectable 71% attributed to those who held the stock over the past five years, you could argue that these developments are starting to get the attention they deserve. In light of this, we believe it is worth taking this action further because if Resintech Berhad can maintain these trends, it could have a bright future.
One last note, you should inquire about the 4 warning signs we spotted it with Resintech Berhad (including 1 which is significant).
If you want to look for solid businesses with great income, check out this free list of companies with good balance sheets and impressive returns on equity.
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