What are the early trends we should look for to identify a stock that could 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Public Packages Holdings Berhad (KLSE:PPHB) looks quite promising in regards to its trends of return on capital.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Public Packages Holdings Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.13 = RM46m ÷ (RM396m - RM38m) (Based on the trailing twelve months to December 2022).
So, Public Packages Holdings Berhad has an ROCE of 13%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Packaging industry average of 12%.
View our latest analysis for Public Packages Holdings Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Public Packages Holdings Berhad's ROCE against it's prior returns. If you'd like to look at how Public Packages Holdings Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Can We Tell From Public Packages Holdings Berhad's ROCE Trend?
Public Packages Holdings Berhad is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 13%. Basically the business is earning more per dollar of capital invested and in addition to that, 57% more capital is being employed now too. So we're very much inspired by what we're seeing at Public Packages Holdings Berhad thanks to its ability to profitably reinvest capital.
One more thing to note, Public Packages Holdings Berhad has decreased current liabilities to 9.6% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.
The Bottom Line On Public Packages Holdings Berhad's ROCE
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 Public Packages Holdings Berhad has. And with a respectable 58% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.