Poh Kong Holdings Berhad's (KLSE:POHKONG) Returns On Capital Are Heading Higher

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it’s a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Poh Kong Holdings Berhad’s (KLSE:POHKONG) returns on capital, so let’s have a look.

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. Analysts use this formula to calculate it for Poh Kong Holdings Berhad:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)

0.18 = RM167m ÷ (RM1.1b – RM181m) (Based on the trailing twelve months to October 2024).

So, Poh Kong Holdings Berhad has an ROCE of 18%. On its own, that’s a standard return, however it’s much better than the 9.2% generated by the Luxury industry.

View our latest analysis for Poh Kong Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Poh Kong Holdings Berhad’s ROCE against it’s prior returns. If you’d like to look at how Poh Kong Holdings Berhad has performed in the past in other metrics, you can view this free graph of Poh Kong Holdings Berhad’s past earnings, revenue and cash flow.

Poh Kong Holdings Berhad is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 18%. The amount of capital employed has increased too, by 45%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that’s why we’re impressed.

All in all, it’s terrific to see that Poh Kong Holdings Berhad is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 92% to shareholders over the last five years, it’s fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you’d like to know about the risks facing Poh Kong Holdings Berhad, we’ve discovered 2 warning signs that you should be aware of.