Investors Met With Slowing Returns on Capital At Mieco Chipboard Berhad (KLSE:MIECO)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Mieco Chipboard Berhad (KLSE:MIECO) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Mieco Chipboard Berhad, this is the formula:

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

0.054 = RM29m ÷ (RM723m - RM199m) (Based on the trailing twelve months to December 2021).

So, Mieco Chipboard Berhad has an ROCE of 5.5%. On its own, that's a low figure but it's around the 5.9% average generated by the Forestry industry.

Check out our latest analysis for Mieco Chipboard Berhad

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

What Does the ROCE Trend For Mieco Chipboard Berhad Tell Us?

The returns on capital haven't changed much for Mieco Chipboard Berhad in recent years. The company has consistently earned 5.5% for the last five years, and the capital employed within the business has risen 21% in that time. 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.

What We Can Learn From Mieco Chipboard Berhad's ROCE

In summary, Mieco Chipboard Berhad has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly, the stock has only gained 35% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you'd like to know more about Mieco Chipboard Berhad, we've spotted 3 warning signs, and 1 of them is potentially serious.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.