Returns On Capital At Kuala Lumpur Kepong Berhad (KLSE:KLK) Have Hit The Brakes

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Kuala Lumpur Kepong Berhad (KLSE:KLK), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Kuala Lumpur Kepong Berhad, this is the formula:

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

0.067 = RM1.7b ÷ (RM32b - RM6.1b) (Based on the trailing twelve months to June 2024).

Thus, Kuala Lumpur Kepong Berhad has an ROCE of 6.7%. In absolute terms, that's a low return and it also under-performs the Food industry average of 8.9%.

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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Kuala Lumpur Kepong Berhad .

What The Trend Of ROCE Can Tell Us

In terms of Kuala Lumpur Kepong Berhad's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 6.7% for the last five years, and the capital employed within the business has risen 65% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Kuala Lumpur Kepong Berhad's ROCE

In summary, Kuala Lumpur Kepong Berhad has simply been reinvesting capital and generating the same low rate of return as before. And investors may be recognizing these trends since the stock has only returned a total of 14% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One more thing: We've identified 3 warning signs with Kuala Lumpur Kepong Berhad (at least 2 which don't sit too well with us) , and understanding these would certainly be useful.

While Kuala Lumpur Kepong 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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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.