Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Oceancash Pacific Berhad (KLSE:OCNCASH) and its ROCE trend, we weren't exactly thrilled.
Understanding Return On Capital Employed (ROCE)
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Oceancash Pacific Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.05 = RM6.1m ÷ (RM138m - RM14m) (Based on the trailing twelve months to June 2022).
Thus, Oceancash Pacific Berhad has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Luxury industry average of 6.8%.
See our latest analysis for Oceancash Pacific Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Oceancash Pacific Berhad's ROCE against it's prior returns. If you're interested in investigating Oceancash Pacific Berhad's past further, check out this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
In terms of Oceancash Pacific Berhad's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 17%, but since then they've fallen to 5.0%. However it looks like Oceancash Pacific Berhad might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.
What We Can Learn From Oceancash Pacific Berhad's ROCE
Bringing it all together, while we're somewhat encouraged by Oceancash Pacific Berhad's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 53% in the last five years. Therefore based on the analysis done in this article, we don't think Oceancash Pacific Berhad has the makings of a multi-bagger.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Oceancash Pacific Berhad (of which 1 can't be ignored!) that you should know about.