What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. So on that note, Sunzen Biotech Berhad (KLSE:SUNZEN) looks quite promising in regards to its trends of return on capital.

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. To calculate this metric for Sunzen Biotech Berhad, this is the formula:

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

0.055 = RM7.6m ÷ (RM151m - RM13m) (Based on the trailing twelve months to December 2022).

Therefore, Sunzen Biotech Berhad has an ROCE of 5.5%. In absolute terms, that's a low return and it also under-performs the Personal Products industry average of 10%.

Check out our latest analysis for Sunzen Biotech 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 want to delve into the historical earnings, revenue and cash flow of Sunzen Biotech Berhad, check out these free graphs here.

So How Is Sunzen Biotech Berhad's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 5.5%. The amount of capital employed has increased too, by 35%. So we're very much inspired by what we're seeing at Sunzen Biotech Berhad thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that Sunzen Biotech Berhad is reaping the rewards from prior investments and is growing its capital base. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we found 2 warning signs for Sunzen Biotech Berhad (1 shouldn't be ignored) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.

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