Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. With that in mind, we've noticed some promising trends at CCK Consolidated Holdings Berhad (KLSE:CCK) so let's look a bit deeper.
What is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on CCK Consolidated Holdings Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = RM34m ÷ (RM431m - RM86m) (Based on the trailing twelve months to March 2021).
Thus, CCK Consolidated Holdings Berhad has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 7.5% it's much better.
In the above chart we have measured CCK Consolidated Holdings Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering CCK Consolidated Holdings Berhad here for free.
What Can We Tell From CCK Consolidated Holdings Berhad's ROCE Trend?
We like the trends that we're seeing from CCK Consolidated Holdings Berhad. The data shows that returns on capital have increased substantially over the last five years to 10%. Basically the business is earning more per dollar of capital invested and in addition to that, 47% more capital is being employed now too. 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.
To sum it up, CCK Consolidated Holdings Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 143% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
If you'd like to know about the risks facing CCK Consolidated Holdings Berhad, we've discovered 1 warning sign that you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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