Investors Will Want Oriental Food Industries Holdings Berhad's (KLSE:OFI) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Oriental Food Industries Holdings Berhad's (KLSE:OFI) returns on capital, so let's have a look.

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. To calculate this metric for Oriental Food Industries Holdings Berhad, this is the formula:

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

0.094 = RM23m ÷ (RM283m - RM33m) (Based on the trailing twelve months to June 2023).

Thus, Oriental Food Industries Holdings Berhad has an ROCE of 9.4%. In absolute terms, that's a low return, but it's much better than the Food industry average of 6.8%.

Check out our latest analysis for Oriental Food Industries Holdings Berhad

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

So How Is Oriental Food Industries Holdings Berhad's ROCE Trending?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The data shows that returns on capital have increased substantially over the last five years to 9.4%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 21%. So we're very much inspired by what we're seeing at Oriental Food Industries Holdings Berhad thanks to its ability to profitably reinvest capital.

Our Take On Oriental Food Industries Holdings Berhad's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Oriental Food Industries Holdings Berhad has. Since the stock has returned a staggering 112% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Oriental Food Industries Holdings Berhad can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 2 warning signs for Oriental Food Industries Holdings Berhad you'll probably want to know about.

While Oriental Food Industries Holdings Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.