If you want to identify your next multibagger, there are some important trends to look out for. Ideally, your business will see two trends. First, an increase in return on capital employed (ROCE), and second, an increase in the amount of capital employed. This shows that it is a compounding machine and the earnings can be continuously reinvested into the business to generate higher profits. Having said that, Mr. DIY Group (M) Berhad’s (KLSE:MRDIY) ROCE is currently high, but don’t jump off your chair because of the diminishing returns.
About Return on Capital Employed (ROCE)
In case you aren’t familiar, ROCE is a metric that measures how much pre-tax profit (as a percentage) a company earns on the capital invested in its business. The formula for this calculation in Mr DIY Group (M) Berhad is:
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.28 = RM848m ÷ (RM3.7b – RM650m) (Based on trailing 12 months to June 2024).
So Mr DIY Group (M) Berhad’s ROCE is 28%. That’s an impressive return, and not only that, but it’s higher than the average 12% earned by companies in similar industries.
Check out our latest analysis for Mr DIY Group (M) Berhad.
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Above you can see how Mr DIY Group (M) Berhad’s current ROCE compares to its previous return on capital, but history can only tell us so much. If you’re interested, check out our free analyst report for Mr DIY Group (M) Berhad to see what analysts are forecasting.
What are the return trends like?
When it comes to Mr DIY Group (M) Berhad’s historical ROCE movement, its trends are not great. It’s reassuring to have a high ROCE, but five years ago it was 35%. Meanwhile, although the business is leveraging more capital, there has been no significant change in sales over the past 12 months, which may reflect long-term investment. It’s worth keeping an eye on the company’s earnings going forward to see if these investments ultimately contribute to its bottom line.
What we can learn from Mr DIY Group (M) Berhad’s ROCE
In summary, we are somewhat encouraged by Mister DIY Group (M) Berhad’s reinvestment in its business, although we acknowledge that its earnings are shrinking. Investors also appear hesitant to see the trend accelerate, as the stock has fallen 13% over the past three years. Overall, the inherent tendency is not unique to multibaggers, so we think if that’s what you’re looking for, you might have better luck elsewhere.
the story continues
If you want to continue researching Mr DIY Group (M) Berhad, you might be interested to know about the 1 warning sign we’ve discovered in our analysis.
If you’d like to see other companies earning high profits, check out this free list of companies with strong balance sheets that earn high profits.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.
