Stock Analysis

Will Toyo Ink Group Berhad (KLSE:TOYOVEN) Multiply In Value Going Forward?

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KLSE:TOYOVEN
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There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. However, after briefly looking over the numbers, we don't think Toyo Ink Group Berhad (KLSE:TOYOVEN) 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)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Toyo Ink Group Berhad is:

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

0.019 = RM8.0m ÷ (RM446m - RM19m) (Based on the trailing twelve months to March 2020).

So, Toyo Ink Group Berhad has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 7.2%.

See our latest analysis for Toyo Ink Group Berhad

roce
KLSE:TOYOVEN Return on Capital Employed March 16th 2021

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

So How Is Toyo Ink Group Berhad's ROCE Trending?

In terms of Toyo Ink Group Berhad's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 2.9% over the last five years. However it looks like Toyo Ink Group Berhad might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, Toyo Ink Group Berhad has done well to pay down its current liabilities to 4.3% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

What We Can Learn From Toyo Ink Group Berhad's ROCE

To conclude, we've found that Toyo Ink Group Berhad is reinvesting in the business, but returns have been falling. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 326% gain to shareholders who have held over the last five years. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

Like most companies, Toyo Ink Group Berhad does come with some risks, and we've found 4 warning signs that you should be aware of.

While Toyo Ink Group 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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