If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Erdasan Group Berhad's( KLSE:ERDASAN ) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Erdasan Group Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = RM17m ÷ (RM191m - RM27m) (Based on the trailing twelve months to March 2025) .
So, Erdasan Group Berhad has an ROCE of 10%.That's a relatively normal return on capital, and it's around the 9.0% generated by the Machinery industry.
See our latest analysis for Erdasan Group Berhad
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Erdasan Group Berhad's past further, check out this free graph covering Erdasan Group Berhad's past earnings, revenue and cash flow .
What Does the ROCE Trend For Erdasan Group Berhad Tell Us?
The fact that Erdasan Group Berhad is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 10% on its capital. In addition to that, Erdasan Group Berhad is employing 166% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
The Bottom Line On Erdasan Group Berhad's ROCE
To the delight of most shareholders, Erdasan Group Berhad has now broken into profitability. However the stock is down a substantial 99% in the last five years so there could be other areas of the business hurting its prospects. Still, it's worth doing some further research to see if the trends will continue into the future.
One more thing to note, we've identified 2 warning signs with Erdasan Group Berhad and understanding them should be part of your investment process.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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.
