What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we’ll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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 Supercomnet Technologies Berhad (KLSE:SCOMNET) so let’s look a bit deeper.
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. To calculate this metric for Supercomnet Technologies Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.15 = RM33m ÷ (RM237m – RM15m) (Based on the trailing twelve months to June 2020).
Thus, Supercomnet Technologies Berhad has an ROCE of 15%. In absolute terms, that’s a satisfactory return, but compared to the Electrical industry average of 7.1% it’s much better.
Check out our latest analysis for Supercomnet Technologies Berhad
KLSE:SCOMNET Return on Capital Employed October 17th 2020
Above you can see how the current ROCE for Supercomnet Technologies Berhad compares to its prior returns on capital, but there’s only so much you can tell from the past. If you’d like, you can check out the forecasts from the analysts covering Supercomnet Technologies Berhad here for free.
What Does the ROCE Trend For Supercomnet Technologies Berhad Tell Us?
Supercomnet Technologies Berhad is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 15%. The amount of capital employed has increased too, by 460%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that’s why we’re impressed.
The Bottom Line On Supercomnet Technologies Berhad’s ROCE
All in all, it’s terrific to see that Supercomnet Technologies Berhad is reaping the rewards from prior investments and is growing its capital base. And with the stock having performed exceptionally well over the last five years, these trends are being accounted for by investors. In light of that, we think it’s worth looking further into this stock because if Supercomnet Technologies Berhad can keep these trends up, it could have a bright future ahead.
If you’d like to know about the risks facing Supercomnet Technologies Berhad, we’ve discovered 2 warning signs that you should be aware of.
While Supercomnet Technologies Berhad may not currently earn the highest returns, we’ve compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
This article by Simply Wall St is general in nature. 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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