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. 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. With that in mind, we've noticed some promising trends at Negri Sembilan Oil Palms Berhad (KLSE:NSOP) so let's look a bit deeper.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on Negri Sembilan Oil Palms Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.04 = RM31m ÷ (RM789m - RM13m) (Based on the trailing twelve months to December 2022).
So, Negri Sembilan Oil Palms Berhad has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Food industry average of 11%.
View our latest analysis for Negri Sembilan Oil Palms Berhad
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Negri Sembilan Oil Palms Berhad's past further, check out this free graph of past earnings, revenue and cash flow.
The Trend Of ROCE
While there are companies with higher returns on capital out there, we still find the trend at Negri Sembilan Oil Palms Berhad promising. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 236% in that same time. 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.
What We Can Learn From Negri Sembilan Oil Palms Berhad's ROCE
As discussed above, Negri Sembilan Oil Palms Berhad appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has only returned 3.3% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.