Is There More Growth In Store For Chin Teck Plantations Berhad's (KLSE:CHINTEK) Returns On Capital?

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Chin Teck Plantations Berhad (KLSE:CHINTEK) 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. To calculate this metric for Chin Teck Plantations Berhad, this is the formula:

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

0.053 = RM37m ÷ (RM719m - RM16m) (Based on the trailing twelve months to August 2020).

Therefore, Chin Teck Plantations Berhad has an ROCE of 5.3%. In absolute terms, that's a low return and it also under-performs the Food industry average of 6.8%.

See our latest analysis for Chin Teck Plantations Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Chin Teck Plantations Berhad's ROCE against it's prior returns. If you're interested in investigating Chin Teck Plantations Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Chin Teck Plantations Berhad is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 105% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. 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.

What We Can Learn From Chin Teck Plantations Berhad's ROCE

In summary, we're delighted to see that Chin Teck Plantations Berhad has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

Chin Teck Plantations Berhad does have some risks though, and we've spotted 1 warning sign for Chin Teck Plantations Berhad that you might be interested in.

While Chin Teck Plantations 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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