Marine & General Berhad (KLSE:M&G) yields are rising

If you are looking for a multi-bagger, there are a few things to look out for. Firstly, we want a growing return on the capital employed (ROCE) and then alongside it an ever increasing base of the capital employed. Ultimately, this shows that this is a company that reinvests profits with increasing returns. With this in mind, we have identified some promising trends in Marine and General Berhad (KLSE:M&G), so let’s take a closer look.

Return on Capital Employed (ROCE): What is it?

Just to clarify in case you aren’t sure, ROCE is a ratio that evaluates how much pre-tax profit (as a percentage) a company generates with the capital invested in its business. To calculate this ratio for Marine & General Berhad, the formula is:

Return on capital = earnings before interest and taxes (EBIT) ÷ (total assets – current liabilities)

0.079 = RM57m ÷ (RM853m – RM132m) (Based on the last twelve months to April 2024).

So, Marine & General Berhad has a ROCE of 7.9%. In absolute terms, this is a low return and it is also below the energy services industry average of 10%.

Check out our latest analysis for Marine & General Berhad

Above you can see how the current ROCE for Marine & General Berhad compares to previous returns on capital, but there is only so much to infer from the past. If you want, you can look at the analyst forecasts that Marine & General Berhad has for free.

So how is Marine & General Berhad’s ROCE developing?

Marine & General Berhad recently broke even, so its previous investments appear to be paying off. Shareholders would no doubt be pleased, as the company was loss-making five years ago but is now generating 7.9% of its capital. And like most companies trying to break even, Marine & General Berhad is, unsurprisingly, utilising 1,625% more capital than it was five years ago. We like this trend because it tells us that the company has lucrative reinvestment opportunities available to it, and if it continues like this, it can lead to outperformance.

One more thing to note: Marine & General Berhad has reduced current liabilities to 16% of total assets during this period, effectively reducing funding from suppliers or short-term creditors. So this improvement in ROCE is due to the underlying economics of the business, which is encouraging.

What we can learn from Marine & General Berhad’s ROCE

Overall, Marine & General Berhad gets a big plus from us, mainly because the company is now profitable and reinvesting in its business. And since the stock has performed exceptionally well over the past five years, these patterns are taken into account by investors, so we think it’s worth checking to see if these trends will continue.

The story continues

One final note: You should inform yourself about the 4 warning signs We spotted Marine and General Berhad (including two that are a bit unpleasant).

Marine & General Berhad may not be generating the highest returns right now, but we have compiled a list of companies that are currently generating a return on equity of over 25%. Check it out free List here.

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.