Is Ajinomoto (Malaysia) Berhad (KLSE:AJI) Likely To Turn Things Around?

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Ajinomoto (Malaysia) Berhad (KLSE:AJI) looks decent, right now, so lets see what the trend of returns can tell us.

Understanding 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. The formula for this calculation on Ajinomoto (Malaysia) Berhad is:

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

0.14 = RM70m ÷ (RM612m - RM103m) (Based on the trailing twelve months to September 2020).

Therefore, Ajinomoto (Malaysia) Berhad has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 6.8% generated by the Food industry.

View our latest analysis for Ajinomoto (Malaysia) Berhad

In the above chart we have measured Ajinomoto (Malaysia) Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Ajinomoto (Malaysia) Berhad.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 68% in that time. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Key Takeaway

In the end, Ajinomoto (Malaysia) Berhad has proven its ability to adequately reinvest capital at good rates of return. And long term investors would be thrilled with the 127% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you'd like to know about the risks facing Ajinomoto (Malaysia) Berhad, we've discovered 1 warning sign that you should be aware of.

While Ajinomoto (Malaysia) 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. 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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