If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Ajinomoto (Malaysia) Berhad (KLSE:AJI), we don't think it's current trends fit the mold of a multi-bagger.

What Is 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. To calculate this metric for Ajinomoto (Malaysia) Berhad, this is the formula:

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

0.055 = RM33m ÷ (RM745m - RM141m) (Based on the trailing twelve months to June 2023).

Therefore, Ajinomoto (Malaysia) Berhad has an ROCE of 5.5%. On its own, that's a low figure but it's around the 6.2% average generated by the Food industry.

Check out our latest analysis for Ajinomoto (Malaysia) Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ajinomoto (Malaysia) Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Ajinomoto (Malaysia) Berhad, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Ajinomoto (Malaysia) Berhad, we didn't gain much confidence. To be more specific, ROCE has fallen from 14% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 19%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 5.5%. While the ratio isn't currently too high, it's worth keeping an eye on this because if it gets particularly high, the business could then face some new elements of risk.

Our Take On Ajinomoto (Malaysia) Berhad's ROCE

While returns have fallen for Ajinomoto (Malaysia) Berhad in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 12% in the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.