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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, the ROCE of Ta Ann Holdings Berhad (KLSE:TAANN) looks great, so lets see what the trend can tell us.
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. Analysts use this formula to calculate it for Ta Ann Holdings Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.22 = RM504m ÷ (RM2.8b - RM473m) (Based on the trailing twelve months to December 2022).
Therefore, Ta Ann Holdings Berhad has an ROCE of 22%. In absolute terms that's a great return and it's even better than the Food industry average of 10%.
See our latest analysis for Ta Ann Holdings Berhad
Above you can see how the current ROCE for Ta Ann Holdings 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.
The Trend Of ROCE
Ta Ann Holdings Berhad's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 115% whilst employing roughly the same amount of capital. 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. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.
The Key Takeaway
As discussed above, Ta Ann Holdings Berhad appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 68% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Ta Ann Holdings Berhad can keep these trends up, it could have a bright future ahead.