Yahoo Finance Kein Hing International Berhad (KLSE:KEINHIN) Is Experiencing Growth In Returns On Capital
What trends should we look for it we want to identify stocks that can 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. 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 Kein Hing International Berhad's (KLSE:KEINHIN) returns on capital, so let's have a look.
What Is 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. To calculate this metric for Kein Hing International Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = RM29m ÷ (RM284m - RM71m) (Based on the trailing twelve months to July 2023).
So, Kein Hing International Berhad has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 8.2% generated by the Machinery industry.
Check out our latest analysis for Kein Hing International Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Kein Hing International Berhad's ROCE against it's prior returns. If you'd like to look at how Kein Hing International Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
So How Is Kein Hing International Berhad's ROCE Trending?
The trends we've noticed at Kein Hing International Berhad are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 40% more capital is being employed now too. So we're very much inspired by what we're seeing at Kein Hing International Berhad thanks to its ability to profitably reinvest capital.
What We Can Learn From Kein Hing International Berhad's ROCE
All in all, it's terrific to see that Kein Hing International Berhad is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 208% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
Kein Hing International Berhad does have some risks though, and we've spotted 1 warning sign for Kein Hing International Berhad that you might be interested in.
While Kein Hing International 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.
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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.
