Yahoo Finance Transocean Holdings Bhd (KLSE:TOCEAN) Is Doing The Right Things To Multiply Its Share Price
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Transocean Holdings Bhd (KLSE:TOCEAN) so let's look a bit deeper.
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. The formula for this calculation on Transocean Holdings Bhd is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0076 = RM484k ÷ (RM71m - RM7.3m) (Based on the trailing twelve months to December 2022).
Thus, Transocean Holdings Bhd has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 3.6%.
View our latest analysis for Transocean Holdings Bhd
Historical performance is a great place to start when researching a stock so above you can see the gauge for Transocean Holdings Bhd's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Transocean Holdings Bhd, check out these free graphs here.
How Are Returns Trending?
The fact that Transocean Holdings Bhd is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 0.8% on its capital. And unsurprisingly, like most companies trying to break into the black, Transocean Holdings Bhd is utilizing 44% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 10%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.
The Bottom Line On Transocean Holdings Bhd's ROCE
Overall, Transocean Holdings Bhd gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. Since the stock has returned a staggering 202% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Transocean Holdings Bhd can keep these trends up, it could have a bright future ahead.
One more thing, we've spotted 1 warning sign facing Transocean Holdings Bhd that you might find interesting.
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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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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