Here's What To Make Of Public Packages Holdings Berhad's (KLSE:PPHB) Decelerating Rates Of Return

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Public Packages Holdings Berhad's (KLSE:PPHB) ROCE trend, we were pretty happy with what we saw.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Public Packages Holdings Berhad:

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

0.10 = RM34m ÷ (RM358m - RM30m) (Based on the trailing twelve months to March 2022).

So, Public Packages Holdings 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 Public Packages Holdings Berhad

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

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has consistently earned 10% for the last five years, and the capital employed within the business has risen 53% in that time. Since 10% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, Public Packages Holdings Berhad has done well to reduce current liabilities to 8.5% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

In Conclusion...

To sum it up, Public Packages Holdings Berhad has simply been reinvesting capital steadily, at those decent rates of return. However, despite the favorable fundamentals, the stock has fallen 23% over the last five years, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Like most companies, Public Packages Holdings Berhad does come with some risks, and we've found 1 warning sign that you should be aware of.

While Public Packages Holdings Berhad 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. 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.