Will The ROCE Trend At Negri Sembilan Oil Palms Berhad (KLSE:NSOP) Continue?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Negri Sembilan Oil Palms Berhad (KLSE:NSOP) looks quite promising in regards to its trends of return on capital.

Understanding 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. The formula for this calculation on Negri Sembilan Oil Palms Berhad is:

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

0.00074 = RM538k ÷ (RM725m - RM7.9m) (Based on the trailing twelve months to September 2020).

So, Negri Sembilan Oil Palms Berhad has an ROCE of 0.07%. In absolute terms, that's a low return and it also under-performs the Food industry average of 6.8%.

Check out our latest analysis for Negri Sembilan Oil Palms Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Negri Sembilan Oil Palms Berhad's ROCE against it's prior returns. If you'd like to look at how Negri Sembilan Oil Palms Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

The fact that Negri Sembilan Oil Palms Berhad is now generating some pre-tax profits from its prior investments is very encouraging. About five years ago the company was generating losses but things have turned around because it's now earning 0.07% on its capital. In addition to that, Negri Sembilan Oil Palms Berhad is employing 42% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

What We Can Learn From Negri Sembilan Oil Palms Berhad's ROCE

To the delight of most shareholders, Negri Sembilan Oil Palms Berhad has now broken into profitability. And since the stock has fallen 16% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing to note, we've identified 2 warning signs with Negri Sembilan Oil Palms Berhad and understanding them should be part of your investment process.

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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