Investors Will Want Kuala Lumpur Kepong Berhad's (KLSE:KLK) Growth In ROCE To Persist

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Kuala Lumpur Kepong Berhad (KLSE:KLK) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Kuala Lumpur Kepong Berhad:

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

0.14 = RM3.5b ÷ (RM31b - RM6.5b) (Based on the trailing twelve months to June 2022).

So, Kuala Lumpur Kepong Berhad has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 12% it's much better.

Check out our latest analysis for Kuala Lumpur Kepong Berhad

Above you can see how the current ROCE for Kuala Lumpur Kepong Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Kuala Lumpur Kepong Berhad's ROCE Trending?

We like the trends that we're seeing from Kuala Lumpur Kepong Berhad. Over the last five years, returns on capital employed have risen substantially to 14%. The amount of capital employed has increased too, by 50%. So we're very much inspired by what we're seeing at Kuala Lumpur Kepong Berhad thanks to its ability to profitably reinvest capital.

What We Can Learn From Kuala Lumpur Kepong Berhad's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Kuala Lumpur Kepong Berhad has. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know more about Kuala Lumpur Kepong Berhad, we've spotted 3 warning signs, and 2 of them make us uncomfortable.

While Kuala Lumpur Kepong 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.