If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Master-Pack Group Berhad's (KLSE:MASTER) 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 Master-Pack Group Berhad, this is the formula:

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

0.17 = RM29m ÷ (RM199m - RM21m) (Based on the trailing twelve months to December 2023).

So, Master-Pack Group Berhad has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 8.7% generated by the Packaging industry.

View our latest analysis for Master-Pack Group Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Master-Pack Group 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 Master-Pack Group Berhad.

What Does the ROCE Trend For Master-Pack Group Berhad Tell Us?

We like the trends that we're seeing from Master-Pack Group Berhad. Over the last five years, returns on capital employed have risen substantially to 17%. Basically the business is earning more per dollar of capital invested and in addition to that, 75% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 10%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Key Takeaway

All in all, it's terrific to see that Master-Pack Group Berhad is reaping the rewards from prior investments and is growing its capital base. And a remarkable 411% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.