If you’re looking for a multi-bagger, there’s a few things to keep an eye out for. 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. With that in mind, we’ve noticed some promising trends at TASCO Berhad (KLSE:TASCO) 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 TASCO Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.14 = RM119m ÷ (RM1.7b – RM794m) (Based on the trailing twelve months to June 2023).
So, TASCO Berhad has an ROCE of 14%. On its own, that’s a standard return, however it’s much better than the 4.1% generated by the Logistics industry.
Check out our latest analysis for TASCO Berhad
Above you can see how the current ROCE for TASCO 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 TASCO Berhad here for free.
How Are Returns Trending?
The trends we’ve noticed at TASCO Berhad are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. The company is effectively making more money per dollar of capital used, and it’s worth noting that the amount of capital has increased too, by 23%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that’s why we’re impressed.
On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 48% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. Given it’s pretty high ratio, we’d remind investors that having current liabilities at those levels can bring about some risks in certain businesses.
The Bottom Line
To sum it up, TASCO Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 184% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
TASCO Berhad does have some risks though, and we’ve spotted 1 warning sign for TASCO Berhad that you might be interested in.
While TASCO 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.
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