Kuala Lumpur Kepong Berhad (KLSE:KLK) Might Have The Makings Of A Multi-Bagger

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Kuala Lumpur Kepong Berhad (KLSE:KLK) and its trend of ROCE, we really liked what we saw.

What Is 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. The formula for this calculation on Kuala Lumpur Kepong Berhad is:

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

0.13 = RM3.1b ÷ (RM30b - RM5.7b) (Based on the trailing twelve months to December 2022).

Therefore, Kuala Lumpur Kepong Berhad has an ROCE of 13%. That's a relatively normal return on capital, and it's around the 11% generated by the Food industry.

See 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.

SWOT Analysis for Kuala Lumpur Kepong Berhad

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

Investors would be pleased with what's happening at Kuala Lumpur Kepong Berhad. The data shows that returns on capital have increased substantially over the last five years to 13%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 49%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Our Take On Kuala Lumpur Kepong Berhad's ROCE

To sum it up, Kuala Lumpur Kepong Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Kuala Lumpur Kepong Berhad (of which 1 is a bit unpleasant!) that you should know about.

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.