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What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Chin Teck Plantations Berhad (KLSE:CHINTEK) so let's look a bit deeper.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Chin Teck Plantations Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = RM113m ÷ (RM879m - RM18m) (Based on the trailing twelve months to November 2022).
Therefore, Chin Teck Plantations Berhad has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 11% generated by the Food industry.
See our latest analysis for Chin Teck Plantations Berhad
In the above chart we have measured Chin Teck Plantations Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Chin Teck Plantations Berhad.
What Does the ROCE Trend For Chin Teck Plantations Berhad Tell Us?
The trends we've noticed at Chin Teck Plantations Berhad are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 13%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 21%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
What We Can Learn From Chin Teck Plantations Berhad's ROCE
All in all, it's terrific to see that Chin Teck Plantations Berhad is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 32% 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 exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.
If you want to know some of the risks facing Chin Teck Plantations Berhad we've found 2 warning signs (1 is significant!) that you should be aware of before investing here.