Solid Automotive Berhad (KLSE:SOLID) Shareholders Will Want The ROCE Trajectory To Continue
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. So when we looked at Solid Automotive Berhad (KLSE:SOLID) and its trend of ROCE, we really liked what we saw.
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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. The formula for this calculation on Solid Automotive Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = RM41m ÷ (RM330m - RM87m) (Based on the trailing twelve months to January 2025).
Thus, Solid Automotive Berhad has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Retail Distributors industry.
View our latest analysis for Solid Automotive Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Solid Automotive Berhad's ROCE against it's prior returns. If you'd like to look at how Solid Automotive Berhad has performed in the past in other metrics, you can view this free graph of Solid Automotive Berhad's past earnings, revenue and cash flow.
Investors would be pleased with what's happening at Solid Automotive Berhad. Over the last five years, returns on capital employed have risen substantially to 17%. 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 48%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
All in all, it's terrific to see that Solid Automotive Berhad is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 18% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.
If you'd like to know more about Solid Automotive Berhad, we've spotted 3 warning signs, and 1 of them is a bit concerning.
While Solid Automotive 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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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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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