Riverview Rubber Estates Berhad (KLSE:RVIEW) Has More To Do To Multiply In Value Going Forward

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. However, after briefly looking over the numbers, we don't think Riverview Rubber Estates Berhad (KLSE:RVIEW) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Riverview Rubber Estates Berhad is:

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

0.04 = RM16m ÷ (RM407m - RM4.2m) (Based on the trailing twelve months to March 2023).

So, Riverview Rubber Estates Berhad has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Food industry average of 8.5%.

View our latest analysis for Riverview Rubber Estates Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Riverview Rubber Estates Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Riverview Rubber Estates Berhad, check out these free graphs here.

How Are Returns Trending?

The returns on capital haven't changed much for Riverview Rubber Estates Berhad in recent years. The company has employed 32% more capital in the last five years, and the returns on that capital have remained stable at 4.0%. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

Long story short, while Riverview Rubber Estates Berhad has been reinvesting its capital, the returns that it's generating haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 9.2% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you want to continue researching Riverview Rubber Estates Berhad, you might be interested to know about the 3 warning signs that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.