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What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Sime Darby Plantation Berhad (KLSE:SIMEPLT), 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. The formula for this calculation on Sime Darby Plantation Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = RM3.2b ÷ (RM31b - RM5.4b) (Based on the trailing twelve months to December 2022).
Thus, Sime Darby Plantation Berhad has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 10% it's much better.
Check out our latest analysis for Sime Darby Plantation Berhad
Above you can see how the current ROCE for Sime Darby Plantation Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
So How Is Sime Darby Plantation Berhad's ROCE Trending?
Things have been pretty stable at Sime Darby Plantation Berhad, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Sime Darby Plantation Berhad doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that Sime Darby Plantation Berhad has been paying out a decent 55% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.
The Bottom Line
We can conclude that in regards to Sime Darby Plantation Berhad's returns on capital employed and the trends, there isn't much change to report on. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. Therefore based on the analysis done in this article, we don't think Sime Darby Plantation Berhad has the makings of a multi-bagger.