Investors Met With Slowing Returns on Capital At IOI Corporation Berhad (KLSE:IOICORP)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Although, when we looked at IOI Corporation Berhad (KLSE:IOICORP), it didn't seem to tick all of these boxes.

Understanding 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. Analysts use this formula to calculate it for IOI Corporation Berhad:

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

0.11 = RM1.4b ÷ (RM18b - RM5.1b) (Based on the trailing twelve months to September 2021).

Therefore, IOI Corporation Berhad has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 8.6% it's much better.

Check out our latest analysis for IOI Corporation Berhad

Above you can see how the current ROCE for IOI Corporation Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering IOI Corporation Berhad here for free.

How Are Returns Trending?

Over the past five years, IOI Corporation Berhad's ROCE and capital employed have both remained mostly flat. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect IOI Corporation Berhad to be a multi-bagger going forward. This probably explains why IOI Corporation Berhad is paying out 57% of its income to shareholders in the form of dividends. Unless businesses have highly compelling growth opportunities, they'll typically return some money to shareholders.

In Conclusion...

We can conclude that in regards to IOI Corporation Berhad's returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly then, the total return to shareholders over the last five years has been flat. Therefore based on the analysis done in this article, we don't think IOI Corporation Berhad has the makings of a multi-bagger.

One more thing: We've identified 2 warning signs with IOI Corporation Berhad (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.