Greenyield Berhad (KLSE:GREENYB) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. 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. 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 Greenyield Berhad's (KLSE:GREENYB) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Greenyield Berhad, this is the formula:

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

0.021 = RM5.3m ÷ (RM262m - RM14m) (Based on the trailing twelve months to December 2022).

So, Greenyield Berhad has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Food industry average of 10%.

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 want to delve into the historical earnings, revenue and cash flow of Greenyield Berhad, check out these free graphs here.

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

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 2.1%. The amount of capital employed has increased too, by 243%. So we're very much inspired by what we're seeing at Greenyield Berhad thanks to its ability to profitably reinvest capital.

The Bottom Line

In summary, it's great to see that Greenyield Berhad can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has only returned 33% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you want to know some of the risks facing Greenyield Berhad we've found 4 warning signs (2 are a bit unpleasant!) that you should be aware of before investing here.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.