Greenyield Berhad (KLSE:GREENYB) Has More To Do To Multiply In Value Going Forward

There are a few key trends to look for if we want to identify the next 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Greenyield Berhad (KLSE:GREENYB), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Greenyield Berhad is:

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

0.12 = RM9.7m ÷ (RM86m - RM6.2m) (Based on the trailing twelve months to March 2021).

Therefore, Greenyield Berhad has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 7.4% generated by the Food industry.

See our latest analysis for Greenyield Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Greenyield Berhad's ROCE against it's prior returns. If you'd like to look at how Greenyield Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Greenyield Berhad's ROCE Trend?

Over the past five years, Greenyield Berhad's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at Greenyield Berhad in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

What We Can Learn From Greenyield Berhad's ROCE

In a nutshell, Greenyield Berhad has been trudging along with the same returns from the same amount of capital over the last five years. And with the stock having returned a mere 14% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a final note, we've found 2 warning signs for Greenyield Berhad that we think you should be aware of.

While Greenyield 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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