Karex Berhad's (KLSE:KAREX) Returns On Capital Are Heading Higher

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23-05-2025

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Karex Berhad (KLSE:KAREX) looks quite promising in regards to its trends of return on capital.
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For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Karex Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.052 = RM28m ÷ (RM711m - RM174m) (Based on the trailing twelve months to December 2024).
Therefore, Karex Berhad has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Personal Products industry average of 10%.
Check out our latest analysis for Karex Berhad
Above you can see how the current ROCE for Karex Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Karex Berhad .
Karex Berhad's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 1,524% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.
To bring it all together, Karex Berhad has done well to increase the returns it's generating from its capital employed. Considering the stock has delivered 37% 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 with that in mind, we think the stock deserves further research.
Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our that compares the share price and estimated value.
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.
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