What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in KPJ Healthcare Berhad's (KLSE:KPJ) returns on capital, so let's have a look.
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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 KPJ Healthcare Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = RM680m ÷ (RM7.3b - RM1.2b) (Based on the trailing twelve months to March 2025).
So, KPJ Healthcare Berhad has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 9.5% generated by the Healthcare industry.
See our latest analysis for KPJ Healthcare Berhad
In the above chart we have measured KPJ Healthcare Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering KPJ Healthcare Berhad for free.
The trends we've noticed at KPJ Healthcare Berhad are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 11%. The amount of capital employed has increased too, by 29%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
In summary, it's great to see that KPJ Healthcare Berhad can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 262% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.
While KPJ Healthcare Berhad looks impressive, no company is worth an infinite price. The intrinsic value infographic for KPJ helps visualize whether it is currently trading for a fair price.