IOI Corporation Berhad's (KLSE:IOICORP) Returns On Capital Are Heading Higher
In This Article:
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So when we looked at IOI Corporation Berhad (KLSE:IOICORP) and its trend of ROCE, we really liked what we saw.
What Is 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 IOI Corporation Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
Advertisement: High Yield Savings Offers
0.15 = RM2.2b ÷ (RM18b - RM2.7b) (Based on the trailing twelve months to September 2022).
Thus, IOI Corporation Berhad has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 11% it's much better.
Check out our latest analysis for IOI Corporation Berhad
Above you can see how the current ROCE for IOI Corporation Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for IOI Corporation Berhad.
What The Trend Of ROCE Can Tell Us
IOI Corporation Berhad is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 52% over the last five years. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.
The Bottom Line On IOI Corporation Berhad's ROCE
To sum it up, IOI Corporation Berhad is collecting higher returns from the same amount of capital, and that's impressive. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
IOI Corporation Berhad does have some risks, we noticed 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.