Returns Are Gaining Momentum At Chin Teck Plantations Berhad (KLSE:CHINTEK)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Speaking of which, we noticed some great changes in Chin Teck Plantations Berhad's (KLSE:CHINTEK) 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. 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)

0.065 = RM47m ÷ (RM745m - RM18m) (Based on the trailing twelve months to November 2020).

So, Chin Teck Plantations Berhad has an ROCE of 6.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.3%.

View our latest analysis for Chin Teck Plantations Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of Chin Teck Plantations Berhad, check out these free graphs here.

So How Is Chin Teck Plantations Berhad's ROCE Trending?

Chin Teck Plantations Berhad has not disappointed with their ROCE growth. 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 187% over the last five years. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

As discussed above, Chin Teck Plantations Berhad appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has only returned 0.7% 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 more thing, we've spotted 1 warning sign facing Chin Teck Plantations Berhad that you might find interesting.

While Chin Teck Plantations 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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