Is There More Growth In Store For Innoprise Plantations Berhad's (KLSE:INNO) Returns On Capital?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Innoprise Plantations Berhad's (KLSE:INNO) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Innoprise Plantations Berhad:

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

0.12 = RM46m ÷ (RM402m - RM15m) (Based on the trailing twelve months to September 2020).

So, Innoprise Plantations Berhad has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 6.8% generated by the Food industry.

See our latest analysis for Innoprise Plantations Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Innoprise Plantations Berhad's ROCE against it's prior returns. If you're interested in investigating Innoprise Plantations Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Innoprise Plantations Berhad Tell Us?

Innoprise Plantations Berhad is showing promise given that its ROCE is trending up and to the right. 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 53% 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.

One more thing to note, Innoprise Plantations Berhad has decreased current liabilities to 3.8% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

What We Can Learn From Innoprise Plantations Berhad's ROCE

To sum it up, Innoprise Plantations Berhad is collecting higher returns from the same amount of capital, and that's impressive. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 92% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we found 2 warning signs for Innoprise Plantations Berhad (1 is a bit concerning) you should be aware of.

While Innoprise 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.

When trading Innoprise Plantations Berhad or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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