Investors Will Want Ornapaper Berhad's (KLSE:ORNA) Growth In ROCE To Persist

To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at Ornapaper Berhad (KLSE:ORNA) so let's look a bit deeper.

Understanding 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. Analysts use this formula to calculate it for Ornapaper Berhad:

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

0.10 = RM21m ÷ (RM319m - RM113m) (Based on the trailing twelve months to December 2020).

Therefore, Ornapaper Berhad has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Packaging industry average of 11%.

View our latest analysis for Ornapaper Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Ornapaper Berhad's ROCE against it's prior returns. If you'd like to look at how Ornapaper Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Ornapaper Berhad is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 10%. Basically the business is earning more per dollar of capital invested and in addition to that, 39% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Ornapaper Berhad's ROCE

All in all, it's terrific to see that Ornapaper Berhad is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 87% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Ornapaper Berhad can keep these trends up, it could have a bright future ahead.

On a separate note, we've found 2 warning signs for Ornapaper Berhad you'll probably want to know about.

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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