If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Bright Packaging Industry Berhad (KLSE:BRIGHT) and its trend of ROCE, we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
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. Analysts use this formula to calculate it for Bright Packaging Industry Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0088 = RM1.1m ÷ (RM129m - RM3.8m) (Based on the trailing twelve months to May 2024).
So, Bright Packaging Industry Berhad has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Packaging industry average of 8.4%.
View our latest analysis for Bright Packaging Industry Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Bright Packaging Industry Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Bright Packaging Industry Berhad.
How Are Returns Trending?
Shareholders will be relieved that Bright Packaging Industry Berhad has broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 0.9% on its capital. While returns have increased, the amount of capital employed by Bright Packaging Industry Berhad has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.
What We Can Learn From Bright Packaging Industry Berhad's ROCE
To bring it all together, Bright Packaging Industry Berhad has done well to increase the returns it's generating from its capital employed. Since the stock has only returned 18% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.