If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of AYS Ventures Berhad (KLSE:AYS) looks decent, right now, so lets see what the trend of returns can tell us.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for AYS Ventures Berhad:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.18 = RM89m ÷ (RM1.1b - RM600m) (Based on the trailing twelve months to December 2022).

Thus, AYS Ventures Berhad has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 8.9% generated by the Trade Distributors industry.

View our latest analysis for AYS Ventures Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for AYS Ventures Berhad's ROCE against it's prior returns. If you'd like to look at how AYS Ventures Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is AYS Ventures Berhad's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 18% for the last five years, and the capital employed within the business has risen 90% in that time. 18% is a pretty standard return, and it provides some comfort knowing that AYS Ventures Berhad has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, AYS Ventures Berhad's current liabilities are still rather high at 55% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On AYS Ventures Berhad's ROCE

In the end, AYS Ventures Berhad has proven its ability to adequately reinvest capital at good rates of return. In light of this, the stock has only gained 19% over the last five years for shareholders who have owned the stock in this period. So to determine if AYS Ventures Berhad is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

If you'd like to know more about AYS Ventures Berhad, we've spotted 5 warning signs, and 2 of them shouldn't be ignored.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here