Returns Are Gaining Momentum At Greenyield Berhad (KLSE:GREENYB)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. So when we looked at Greenyield Berhad (KLSE:GREENYB) and its trend of ROCE, we really liked what we saw.

What is 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. Analysts use this formula to calculate it for Greenyield Berhad:

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

0.092 = RM7.7m ÷ (RM92m - RM8.5m) (Based on the trailing twelve months to March 2022).

So, Greenyield Berhad has an ROCE of 9.2%. On its own, that's a low figure but it's around the 11% average generated by the Food industry.

View 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?

Greenyield Berhad's ROCE growth is quite impressive. The figures show that over the last five years, ROCE has grown 679% whilst employing roughly the same amount of capital. 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line

As discussed above, Greenyield 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 29% 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.

Greenyield Berhad does have some risks though, and we've spotted 3 warning signs for Greenyield Berhad that you might be interested in.

While Greenyield 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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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.