If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. In light of that, when we looked at Kuala Lumpur Kepong Berhad (KLSE:KLK) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Kuala Lumpur Kepong Berhad is:

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

0.086 = RM2.2b ÷ (RM30b - RM4.8b) (Based on the trailing twelve months to June 2023).

Therefore, Kuala Lumpur Kepong Berhad has an ROCE of 8.6%. On its own that's a low return, but compared to the average of 6.8% generated by the Food industry, it's much better.

See our latest analysis for Kuala Lumpur Kepong Berhad

In the above chart we have measured Kuala Lumpur Kepong Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Kuala Lumpur Kepong Berhad's ROCE Trend?

There are better returns on capital out there than what we're seeing at Kuala Lumpur Kepong Berhad. The company has employed 56% more capital in the last five years, and the returns on that capital have remained stable at 8.6%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Kuala Lumpur Kepong Berhad's ROCE

Long story short, while Kuala Lumpur Kepong Berhad has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly then, the total return to shareholders over the last five years has been flat. Therefore based on the analysis done in this article, we don't think Kuala Lumpur Kepong Berhad has the makings of a multi-bagger.

On a separate note, we've found 3 warning signs for Kuala Lumpur Kepong Berhad you'll probably want to know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.