Investors Will Want NPC Resources Berhad's (KLSE:NPC) Growth In ROCE To Persist

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at NPC Resources Berhad (KLSE:NPC) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for NPC Resources Berhad, this is the formula:

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

0.06 = RM59m ÷ (RM1.3b - RM315m) (Based on the trailing twelve months to March 2024).

So, NPC Resources Berhad has an ROCE of 6.0%. On its own, that's a low figure but it's around the 7.1% average generated by the Food industry.

View our latest analysis for NPC Resources Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for NPC Resources Berhad's ROCE against it's prior returns. If you're interested in investigating NPC Resources Berhad's past further, check out this free graph covering NPC Resources Berhad's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that NPC Resources Berhad is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 6.0% on its capital. In addition to that, NPC Resources Berhad is employing 124% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

One more thing to note, NPC Resources Berhad has decreased current liabilities to 24% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

In Conclusion...

In summary, it's great to see that NPC Resources Berhad has managed to break into profitability and is continuing to reinvest in its business.

On a final note, we found 3 warning signs for NPC Resources Berhad (2 shouldn't be ignored) you should be aware of.

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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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.

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