KPJ Healthcare Berhad (KLSE:KPJ) Has More To Do To Multiply In Value Going Forward

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at KPJ Healthcare Berhad (KLSE:KPJ) 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 KPJ Healthcare Berhad, this is the formula:

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

0.076 = RM402m ÷ (RM7.0b - RM1.7b) (Based on the trailing twelve months to December 2022).

Therefore, KPJ Healthcare Berhad has an ROCE of 7.6%. On its own, that's a low figure but it's around the 9.3% average generated by the Healthcare industry.

Check out our latest analysis for KPJ Healthcare Berhad

In the above chart we have measured KPJ Healthcare Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering KPJ Healthcare Berhad here for free.

How Are Returns Trending?

The returns on capital haven't changed much for KPJ Healthcare Berhad in recent years. Over the past five years, ROCE has remained relatively flat at around 7.6% and the business has deployed 68% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Bottom Line

In summary, KPJ Healthcare Berhad has simply been reinvesting capital and generating the same low rate of return as before. And investors may be recognizing these trends since the stock has only returned a total of 33% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

On a final note, we found 2 warning signs for KPJ Healthcare Berhad (1 makes us a bit uncomfortable) you should be aware of.

While KPJ Healthcare 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.