Returns Are Gaining Momentum At YTL Power International Berhad (KLSE:YTLPOWR)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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, YTL Power International Berhad (KLSE:YTLPOWR) 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. Analysts use this formula to calculate it for YTL Power International Berhad:

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

0.095 = RM5.5b ÷ (RM67b - RM9.0b) (Based on the trailing twelve months to June 2024).

Thus, YTL Power International Berhad has an ROCE of 9.5%. In absolute terms, that's a low return, but it's much better than the Integrated Utilities industry average of 5.8%.

View our latest analysis for YTL Power International Berhad

Above you can see how the current ROCE for YTL Power International Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering YTL Power International Berhad for free.

So How Is YTL Power International 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 9.5%. Basically the business is earning more per dollar of capital invested and in addition to that, 59% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what YTL Power International Berhad has. Since the stock has returned a staggering 439% 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 YTL Power International Berhad can keep these trends up, it could have a bright future ahead.

YTL Power International Berhad does have some risks, we noticed 3 warning signs (and 2 which are a bit concerning) we think you should know about.

While YTL Power International Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.