Has Malayan Flour Mills Berhad (KLSE:MFLOUR) Got What It Takes To Become A Multi-Bagger?

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Malayan Flour Mills Berhad (KLSE:MFLOUR) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Malayan Flour Mills Berhad:

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

0.04 = RM56m ÷ (RM2.6b - RM1.2b) (Based on the trailing twelve months to September 2020).

Therefore, Malayan Flour Mills Berhad has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Food industry average of 6.8%.

View our latest analysis for Malayan Flour Mills Berhad

Above you can see how the current ROCE for Malayan Flour Mills 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 Malayan Flour Mills Berhad here for free.

What Does the ROCE Trend For Malayan Flour Mills Berhad Tell Us?

When we looked at the ROCE trend at Malayan Flour Mills Berhad, we didn't gain much confidence. Around five years ago the returns on capital were 9.0%, but since then they've fallen to 4.0%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a separate but related note, it's important to know that Malayan Flour Mills Berhad has a current liabilities to total assets ratio of 46%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Malayan Flour Mills Berhad's ROCE

In summary, Malayan Flour Mills Berhad is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 32% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

On a separate note, we've found 1 warning sign for Malayan Flour Mills Berhad you'll probably want to know about.

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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