If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So on that note, Perak Corporation Berhad (KLSE:PRKCORP) looks quite promising in regards to its trends of return on capital.
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 Perak Corporation Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = RM35m ÷ (RM538m - RM196m) (Based on the trailing twelve months to March 2024).
Therefore, Perak Corporation Berhad has an ROCE of 10%. By itself that's a normal return on capital and it's in line with the industry's average returns of 10%.
Check out our latest analysis for Perak Corporation Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Perak Corporation Berhad's ROCE against it's prior returns. If you'd like to look at how Perak Corporation Berhad has performed in the past in other metrics, you can view this free graph of Perak Corporation Berhad's past earnings, revenue and cash flow.
So How Is Perak Corporation Berhad's ROCE Trending?
The trends we've noticed at Perak Corporation Berhad are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 10%. The amount of capital employed has increased too, by 35%. 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.
One more thing to note, Perak Corporation Berhad has decreased current liabilities to 36% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.
What We Can Learn From Perak Corporation Berhad's ROCE
A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Perak Corporation Berhad has. Given the stock has declined 18% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.