Hubline Berhad (KLSE:HUBLINE) Is Looking To Continue Growing Its Returns On Capital
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Hubline Berhad (KLSE:HUBLINE) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
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 Hubline Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = RM24m ÷ (RM342m - RM114m) (Based on the trailing twelve months to September 2022).
So, Hubline Berhad has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.
Check out our latest analysis for Hubline 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 Hubline Berhad's past further, check out this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Hubline Berhad Tell Us?
Hubline Berhad has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 11% on its capital. And unsurprisingly, like most companies trying to break into the black, Hubline Berhad is utilizing 41% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.
In Conclusion...
Long story short, we're delighted to see that Hubline Berhad's reinvestment activities have paid off and the company is now profitable. And since the stock has fallen 64% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
One more thing to note, we've identified 2 warning signs with Hubline Berhad and understanding them should be part of your investment process.
While Hubline Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
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