What Do The Returns On Capital At NPC Resources Berhad (KLSE:NPC) Tell Us?

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think NPC Resources Berhad (KLSE:NPC) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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. The formula for this calculation on NPC Resources Berhad is:

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

0.011 = RM11m ÷ (RM1.4b - RM388m) (Based on the trailing twelve months to June 2020).

So, NPC Resources Berhad has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Food industry average of 7.1%.

Check out our latest analysis for NPC Resources Berhad

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 NPC Resources Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is NPC Resources Berhad's ROCE Trending?

The returns on capital haven't changed much for NPC Resources Berhad in recent years. The company has employed 95% more capital in the last five years, and the returns on that capital have remained stable at 1.1%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

In summary, NPC Resources Berhad has simply been reinvesting capital and generating the same low rate of return as before. And in the last five years, the stock has given away 29% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for NPC Resources Berhad (of which 1 is significant!) that you should know about.

While NPC Resources 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. 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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