04-04-2025
MGB Berhad (KLSE:MGB) Is Experiencing Growth In Returns On Capital
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in MGB Berhad's (KLSE:MGB) returns on capital, so let's have a look.
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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 MGB Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = RM80m ÷ (RM1.1b - RM449m) (Based on the trailing twelve months to December 2024).
So, MGB Berhad has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Construction industry average of 10.0%.
Check out our latest analysis for MGB Berhad
Above you can see how the current ROCE for MGB Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering MGB Berhad for free.
The trends we've noticed at MGB Berhad are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 12%. 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 30%. 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 MGB Berhad is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 16% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
MGB Berhad does have some risks though, and we've spotted 2 warning signs for MGB Berhad that you might be interested in.
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