Master-Pack Group Berhad (KLSE:MASTER) Shareholders Will Want The ROCE Trajectory To Continue

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. Speaking of which, we noticed some great changes in Master-Pack Group Berhad's (KLSE:MASTER) returns on capital, so let's have a look.

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. The formula for this calculation on Master-Pack Group Berhad is:

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

0.16 = RM23m ÷ (RM165m - RM21m) (Based on the trailing twelve months to September 2022).

Thus, Master-Pack Group Berhad has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 11% generated by the Packaging industry.

See our latest analysis for Master-Pack Group Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Master-Pack Group Berhad's ROCE against it's prior returns. If you're interested in investigating Master-Pack Group Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Master-Pack Group Berhad's ROCE Trending?

Master-Pack Group Berhad is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 16%. 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 76%. So we're very much inspired by what we're seeing at Master-Pack Group Berhad thanks to its ability to profitably reinvest capital.

Our Take On Master-Pack Group Berhad's ROCE

To sum it up, Master-Pack Group Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 350% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing to note, we've identified 2 warning signs with Master-Pack Group Berhad and understanding them should be part of your investment process.

While Master-Pack Group 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.