Box-Pak (Malaysia) Bhd's (KLSE:BOXPAK) Returns On Capital Are Heading Higher

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Box-Pak (Malaysia) Bhd (KLSE:BOXPAK) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Box-Pak (Malaysia) Bhd:

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

0.08 = RM27m ÷ (RM624m - RM291m) (Based on the trailing twelve months to December 2020).

Therefore, Box-Pak (Malaysia) Bhd has an ROCE of 8.0%. Ultimately, that's a low return and it under-performs the Packaging industry average of 10%.

View our latest analysis for Box-Pak (Malaysia) Bhd

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 Box-Pak (Malaysia) Bhd's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. Over the last five years, returns on capital employed have risen substantially to 8.0%. The amount of capital employed has increased too, by 48%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

On a side note, Box-Pak (Malaysia) Bhd's current liabilities are still rather high at 47% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

All in all, it's terrific to see that Box-Pak (Malaysia) Bhd is reaping the rewards from prior investments and is growing its capital base. Astute investors may have an opportunity here because the stock has declined 47% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Box-Pak (Malaysia) Bhd does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those can't be ignored...

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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