Will MHC Plantations Bhd's (KLSE:MHC) Growth In ROCE Persist?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at MHC Plantations Bhd (KLSE:MHC) and its trend of ROCE, we really liked what we saw.

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. Analysts use this formula to calculate it for MHC Plantations Bhd:

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

0.049 = RM29m ÷ (RM712m - RM116m) (Based on the trailing twelve months to September 2020).

Therefore, MHC Plantations Bhd has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Food industry average of 6.8%.

View our latest analysis for MHC Plantations Bhd

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating MHC Plantations Bhd's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From MHC Plantations Bhd's ROCE Trend?

While the ROCE is still rather low for MHC Plantations Bhd, we're glad to see it heading in the right direction. The figures show that over the last five years, returns on capital have grown by 149%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 50% less capital than it was five years ago. MHC Plantations Bhd may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line On MHC Plantations Bhd's ROCE

In summary, it's great to see that MHC Plantations Bhd has been able to turn things around and earn higher returns on lower amounts of capital. Given the stock has declined 14% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you'd like to know more about MHC Plantations Bhd, we've spotted 3 warning signs, and 1 of them shouldn't be ignored.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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