We Think C.I. Holdings Berhad (KLSE:CIHLDG) Might Have The DNA Of A Multi-Bagger

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in C.I. Holdings Berhad's (KLSE:CIHLDG) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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 C.I. Holdings Berhad is:

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

0.24 = RM139m ÷ (RM1.0b - RM471m) (Based on the trailing twelve months to June 2024).

Therefore, C.I. Holdings Berhad has an ROCE of 24%. In absolute terms that's a great return and it's even better than the Food industry average of 8.8%.

Check out our latest analysis for C.I. Holdings 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're interested in investigating C.I. Holdings Berhad's past further, check out this free graph covering C.I. Holdings Berhad's past earnings, revenue and cash flow.

What Does the ROCE Trend For C.I. Holdings Berhad Tell Us?

Investors would be pleased with what's happening at C.I. Holdings Berhad. Over the last five years, returns on capital employed have risen substantially to 24%. Basically the business is earning more per dollar of capital invested and in addition to that, 121% more capital is being employed now too. So we're very much inspired by what we're seeing at C.I. Holdings Berhad thanks to its ability to profitably reinvest capital.

On a side note, C.I. Holdings Berhad's current liabilities are still rather high at 45% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From C.I. Holdings Berhad's ROCE

To sum it up, C.I. Holdings Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 178% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing, we've spotted 1 warning sign facing C.I. Holdings Berhad that you might find interesting.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.