Will Box-Pak (Malaysia) Bhd (KLSE:BOXPAK) Multiply In Value Going Forward?

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. However, after investigating Box-Pak (Malaysia) Bhd (KLSE:BOXPAK), we don't think it's current trends fit the mold of a multi-bagger.

What is Return On Capital Employed (ROCE)?

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. 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)

0.078 = RM27m ÷ (RM627m - RM282m) (Based on the trailing twelve months to September 2020).

Thus, Box-Pak (Malaysia) Bhd has an ROCE of 7.8%. Ultimately, that's a low return and it under-performs the Packaging industry average of 11%.

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

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

What Does the ROCE Trend For Box-Pak (Malaysia) Bhd Tell Us?

There are better returns on capital out there than what we're seeing at Box-Pak (Malaysia) Bhd. The company has employed 51% more capital in the last five years, and the returns on that capital have remained stable at 7.8%. 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.

On a separate but related note, it's important to know that Box-Pak (Malaysia) Bhd has a current liabilities to total assets ratio of 45%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

Long story short, while Box-Pak (Malaysia) Bhd has been reinvesting its capital, the returns that it's generating haven't increased. And investors appear hesitant that the trends will pick up because the stock has fallen 48% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

On a final note, we found 3 warning signs for Box-Pak (Malaysia) Bhd (1 is significant) you should be aware of.

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. 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.
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