Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Speaking of which, we noticed some great changes in Malpac Holdings Berhad's (KLSE:MALPAC) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Malpac Holdings Berhad, this is the formula:

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

0.0099 = RM1.7m ÷ (RM185m - RM11m) (Based on the trailing twelve months to December 2022).

Therefore, Malpac Holdings Berhad has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the Food industry average of 11%.

View our latest analysis for Malpac Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Malpac Holdings Berhad's ROCE against it's prior returns. If you're interested in investigating Malpac Holdings Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Malpac Holdings Berhad's ROCE Trend?

We're delighted to see that Malpac Holdings Berhad is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 1.0% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. 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.

One more thing to note, Malpac Holdings Berhad has decreased current liabilities to 5.8% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.