Genting Plantations Berhad (KLSE:GENP) Is Experiencing Growth In Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Genting Plantations Berhad's (KLSE:GENP) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Genting Plantations Berhad:

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

0.079 = RM609m ÷ (RM8.6b - RM827m) (Based on the trailing twelve months to September 2021).

Therefore, Genting Plantations Berhad has an ROCE of 7.9%. On its own, that's a low figure but it's around the 8.6% average generated by the Food industry.

View our latest analysis for Genting Plantations Berhad

In the above chart we have measured Genting Plantations Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Genting Plantations Berhad.

What Can We Tell From Genting Plantations Berhad's ROCE Trend?

Genting Plantations Berhad's ROCE growth is quite impressive. 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 104% 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.

The Bottom Line On Genting Plantations Berhad's ROCE

In summary, we're delighted to see that Genting Plantations Berhad has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 37% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know more about Genting Plantations Berhad, we've spotted 2 warning signs, and 1 of them can't be ignored.

While Genting 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. 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.