Does CCK Consolidated Holdings Berhad (KLSE:CCK) Have The Makings Of A Multi-Bagger?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. With that in mind, we've noticed some promising trends at CCK Consolidated Holdings Berhad (KLSE:CCK) so let's look a bit deeper.

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. Analysts use this formula to calculate it for CCK Consolidated Holdings Berhad:

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

0.11 = RM36m ÷ (RM406m - RM84m) (Based on the trailing twelve months to September 2020).

Thus, CCK Consolidated Holdings Berhad has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 6.8% generated by the Food industry.

Check out our latest analysis for CCK Consolidated Holdings Berhad

Above you can see how the current ROCE for CCK Consolidated Holdings 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 CCK Consolidated Holdings Berhad.

What The Trend Of ROCE Can Tell Us

Investors would be pleased with what's happening at CCK Consolidated Holdings Berhad. Over the last five years, returns on capital employed have risen substantially to 11%. The amount of capital employed has increased too, by 92%. 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, CCK Consolidated Holdings Berhad has decreased current liabilities to 21% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line

In summary, it's great to see that CCK Consolidated Holdings Berhad can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has returned a staggering 119% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know about the risks facing CCK Consolidated Holdings Berhad, we've discovered 2 warning signs that you should be aware of.

While CCK Consolidated Holdings Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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