Evergreen Fibreboard Berhad (KLSE:EVERGRN) Hasn't Managed To Accelerate Its Returns

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. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Evergreen Fibreboard Berhad (KLSE:EVERGRN) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Evergreen Fibreboard Berhad, this is the formula:

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

0.056 = RM65m ÷ (RM1.5b - RM308m) (Based on the trailing twelve months to June 2022).

So, Evergreen Fibreboard Berhad has an ROCE of 5.6%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.9%.

Our analysis indicates that EVERGRN is potentially undervalued!

Above you can see how the current ROCE for Evergreen Fibreboard Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Evergreen Fibreboard Berhad here for free.

So How Is Evergreen Fibreboard Berhad's ROCE Trending?

Over the past five years, Evergreen Fibreboard Berhad's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at Evergreen Fibreboard Berhad in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. With fewer investment opportunities, it makes sense that Evergreen Fibreboard Berhad has been paying out a decent 36% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Bottom Line

We can conclude that in regards to Evergreen Fibreboard Berhad's returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 44% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.

If you'd like to know about the risks facing Evergreen Fibreboard Berhad, we've discovered 2 warning signs that you should be aware of.

While Evergreen Fibreboard 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.

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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.