Oriental Food Industries Holdings Berhad (KLSE:OFI) Is Experiencing Growth In Returns On Capital

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Oriental Food Industries Holdings Berhad (KLSE:OFI) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Oriental Food Industries Holdings Berhad is:

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

0.09 = RM22m ÷ (RM295m - RM49m) (Based on the trailing twelve months to December 2022).

So, Oriental Food Industries Holdings Berhad has an ROCE of 9.0%. In absolute terms, that's a low return and it also under-performs the Food industry average of 11%.

See our latest analysis for Oriental Food Industries Holdings 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 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?

Oriental Food Industries Holdings Berhad is showing promise given that its ROCE is trending up and to the right. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 83% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

What We Can Learn From Oriental Food Industries Holdings Berhad's ROCE

To sum it up, Oriental Food Industries Holdings Berhad is collecting higher returns from the same amount of capital, and that's impressive. Since the stock has only returned 39% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

One more thing, we've spotted 2 warning signs facing Oriental Food Industries Holdings Berhad that you might find interesting.

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.