Returns Are Gaining Momentum At Boustead Plantations Berhad (KLSE:BPLANT)

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Boustead Plantations Berhad's (KLSE:BPLANT) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Boustead Plantations Berhad is:

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

0.047 = RM165m ÷ (RM4.1b - RM574m) (Based on the trailing twelve months to March 2023).

Thus, Boustead Plantations Berhad has an ROCE of 4.7%. Ultimately, that's a low return and it under-performs the Food industry average of 8.5%.

See our latest analysis for Boustead Plantations Berhad

Above you can see how the current ROCE for Boustead Plantations Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Boustead Plantations Berhad.

SWOT Analysis for Boustead Plantations Berhad

How Are Returns Trending?

While there are companies with higher returns on capital out there, we still find the trend at Boustead Plantations Berhad promising. The figures show that over the last five years, ROCE has grown 27% 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 Bottom Line On Boustead Plantations Berhad's ROCE

In summary, we're delighted to see that Boustead Plantations Berhad has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has only returned 13% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

One final note, you should learn about the 5 warning signs we've spotted with Boustead Plantations Berhad (including 2 which are significant) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.