Here’s What’s Happening With Returns At BP Plastics Holding Bhd (KLSE:BPPLAS)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at BP Plastics Holding Bhd (KLSE:BPPLAS) so let's look a bit deeper.

What is 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. To calculate this metric for BP Plastics Holding Bhd, this is the formula:

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

0.17 = RM35m ÷ (RM248m - RM35m) (Based on the trailing twelve months to September 2020).

So, BP Plastics Holding Bhd has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 11% it's much better.

See our latest analysis for BP Plastics Holding 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'd like to look at how BP Plastics Holding Bhd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is BP Plastics Holding Bhd's ROCE Trending?

BP Plastics Holding Bhd is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 17%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 28%. So we're very much inspired by what we're seeing at BP Plastics Holding Bhd thanks to its ability to profitably reinvest capital.

Our Take On BP Plastics Holding Bhd's ROCE

In summary, it's great to see that BP Plastics Holding Bhd can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Since the stock has only returned 8.6% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

Like most companies, BP Plastics Holding Bhd does come with some risks, and we've found 2 warning signs that you should be aware of.

While BP Plastics Holding Bhd 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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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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