Here's What To Make Of United Plantations Berhad's (KLSE:UTDPLT) Decelerating Rates Of Return

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. In light of that, when we looked at United Plantations Berhad (KLSE:UTDPLT) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for United Plantations Berhad, this is the formula:

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

0.16 = RM456m ÷ (RM3.0b - RM161m) (Based on the trailing twelve months to March 2021).

So, United Plantations Berhad has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Food industry average of 7.4% it's much better.

View our latest analysis for United Plantations 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 want to delve into the historical earnings, revenue and cash flow of United Plantations Berhad, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for United Plantations Berhad's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if United Plantations Berhad doesn't end up being a multi-bagger in a few years time.

Our Take On United Plantations Berhad's ROCE

We can conclude that in regards to United Plantations Berhad's returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly, the stock has only gained 36% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a separate note, we've found 1 warning sign for United Plantations Berhad you'll probably want to know about.

While United Plantations 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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