There are a few key trends to look for if we want to identify the next 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at Rhong Khen International Berhad (KLSE:RKI), it didn't seem to tick all of these boxes.

Understanding 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 Rhong Khen International Berhad, this is the formula:

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

0.091 = RM64m ÷ (RM860m - RM157m) (Based on the trailing twelve months to December 2022).

Thus, Rhong Khen International Berhad has an ROCE of 9.1%. In absolute terms, that's a low return but it's around the Consumer Durables industry average of 11%.

See our latest analysis for Rhong Khen International Berhad

Above you can see how the current ROCE for Rhong Khen International Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Rhong Khen International Berhad here for free.

The Trend Of ROCE

Over the past five years, Rhong Khen International Berhad's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Rhong Khen International Berhad in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

The Key Takeaway

We can conclude that in regards to Rhong Khen International Berhad's returns on capital employed and the trends, there isn't much change to report on. 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 Rhong Khen International Berhad has the makings of a multi-bagger.

On a final note, we found 3 warning signs for Rhong Khen International Berhad (1 makes us a bit uncomfortable) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.