Oceancash Pacific Berhad (KLSE:OCNCASH) Will Be Hoping To Turn Its Returns On Capital Around

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. However, after investigating Oceancash Pacific Berhad (KLSE:OCNCASH), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Oceancash Pacific Berhad, this is the formula:

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

0.044 = RM5.9m ÷ (RM149m - RM13m) (Based on the trailing twelve months to March 2024).

Thus, Oceancash Pacific Berhad has an ROCE of 4.4%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 8.2%.

View our latest analysis for Oceancash Pacific Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Oceancash Pacific Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Oceancash Pacific Berhad.

What Does the ROCE Trend For Oceancash Pacific Berhad Tell Us?

In terms of Oceancash Pacific Berhad's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 7.7% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Key Takeaway

From the above analysis, we find it rather worrisome that returns on capital and sales for Oceancash Pacific Berhad have fallen, meanwhile the business is employing more capital than it was five years ago. Investors must expect better things on the horizon though because the stock has risen 12% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Oceancash Pacific Berhad (of which 1 is significant!) that you should know about.

While Oceancash Pacific Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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