Hap Seng Plantations Holdings Berhad (KLSE:HSPLANT) Shareholders Will Want The ROCE Trajectory To Continue

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. 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 Hap Seng Plantations Holdings Berhad's (KLSE:HSPLANT) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Hap Seng Plantations Holdings Berhad, this is the formula:

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

0.13 = RM293m ÷ (RM2.4b - RM64m) (Based on the trailing twelve months to December 2021).

Therefore, Hap Seng Plantations Holdings Berhad has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 8.7% generated by the Food industry.

See our latest analysis for Hap Seng Plantations Holdings Berhad

Above you can see how the current ROCE for Hap Seng Plantations Holdings Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Hap Seng Plantations Holdings Berhad.

How Are Returns Trending?

Hap Seng Plantations Holdings Berhad is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 69% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. 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 On Hap Seng Plantations Holdings Berhad's ROCE

To bring it all together, Hap Seng Plantations Holdings Berhad has done well to increase the returns it's generating from its capital employed. Since the stock has only returned 14% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Hap Seng Plantations Holdings Berhad does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

While Hap Seng Plantations Holdings 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.