Returns On Capital Are Showing Encouraging Signs At Innoprise Plantations Berhad (KLSE:INNO)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Innoprise Plantations Berhad (KLSE:INNO) so let's look a bit deeper.

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 Innoprise Plantations Berhad, this is the formula:

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

0.12 = RM47m ÷ (RM404m - RM18m) (Based on the trailing twelve months to December 2020).

Thus, Innoprise Plantations Berhad has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 7.1% it's much better.

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

What Can We Tell From Innoprise Plantations Berhad's ROCE Trend?

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 25% 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 4.4% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On 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 with a respectable 90% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you'd like to know more about Innoprise Plantations Berhad, we've spotted 2 warning signs, and 1 of them shouldn't be ignored.

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.

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