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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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Berjaya Food Berhad (KLSE:BJFOOD) and its trend of ROCE, we really liked what we saw.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Berjaya Food Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.18 = RM167m ÷ (RM1.4b - RM504m) (Based on the trailing twelve months to June 2023).
Thus, Berjaya Food Berhad has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 6.1% generated by the Hospitality industry.
Check out our latest analysis for Berjaya Food Berhad
In the above chart we have measured Berjaya Food Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Berjaya Food Berhad here for free.
So How Is Berjaya Food Berhad's ROCE Trending?
We like the trends that we're seeing from Berjaya Food Berhad. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. Basically the business is earning more per dollar of capital invested and in addition to that, 75% more capital is being employed now too. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.
The Key Takeaway
To sum it up, Berjaya Food Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.
If you want to continue researching Berjaya Food Berhad, you might be interested to know about the 1 warning sign that our analysis has discovered.