Capital returns are remarkable for Rubberex Corporation (M) Berhad (KLSE: RUBEREX)
If we want to find a potential multi-bagger, there are often underlying trends that can provide clues. In a perfect world, we would like to see a company invest more capital in their business and ideally the returns from that capital also increase. Simply put, these types of businesses are slot machines, meaning they continually reinvest their profits at ever-higher rates of return. So when we looked at the ROCE trend of Rubberex Corporation (M) Berhad (KLSE:RUBEREX) we really liked what we saw.
Understanding return on capital employed (ROCE)
For those unaware, ROCE is a measure of a company’s annual pre-tax profit (yield), relative to the capital employed in the business. The formula for this calculation on Rubberex Corporation (M) Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.38 = RM237m ÷ (RM667m – RM48m) (Based on the last twelve months to December 2021).
Thereby, Rubberex Corporation (M) Berhad has a ROCE of 38%. In absolute terms, this is an excellent return and is even better than the household products industry average of 12%.
Check out our latest analysis for Rubberex Corporation (M) Berhad
Although the past is not indicative of the future, it can be useful to know the historical performance of a company, which is why we have this graph above. If you want to dive deep into Rubberex Corporation (M) Berhad Earnings, Revenue, and Cash Flow History, check out these free graphics here.
What is the return trend?
Investors would be delighted with what is happening at Rubberex Corporation (M) Berhad. Figures show that over the past five years, returns generated on capital employed have increased significantly to 38%. Basically, the business earns more per dollar of capital invested and on top of that, 115% more capital is also utilized now. So we’re very inspired by what we’re seeing at Rubberex Corporation (M) Berhad with its ability to profitably reinvest capital.
In another part of our analysis, we noticed that the ratio of current liabilities to total assets of the company decreased to 7.2%, which overall means that the company relies less on its suppliers or its short-term creditors to finance its operations. So this improvement in ROCE comes from the underlying economics of the business, which is great to see.
In summary, it is good to see that Rubberex Corporation (M) Berhad can accumulate returns by constantly reinvesting capital at increasing rates of return, as these are some of the key ingredients in these highly sought after multiple baggers. Given that the stock has returned a solid 79% to shareholders over the past five years, it’s fair to say that investors are starting to recognize these changes. In light of this, we think it’s worth taking a closer look at this stock, because if Rubberex Corporation (M) Berhad can maintain these trends, it could have a bright future ahead of it.
One more thing we spotted 3 warning signs facing Rubberex Corporation (M) Berhad which might interest you.
High yields are a key ingredient to strong performance, so check out our free list of stocks generating high returns on equity with strong balance sheets.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.