Return Trends At Malaysian Pacific Industries Berhad (KLSE:MPI) Aren't Appealing

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Having said that, from a first glance at Malaysian Pacific Industries Berhad (KLSE:MPI) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Malaysian Pacific Industries Berhad:

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

0.093 = RM228m ÷ (RM2.9b - RM441m) (Based on the trailing twelve months to September 2024).

Thus, Malaysian Pacific Industries Berhad has an ROCE of 9.3%. On its own that's a low return, but compared to the average of 7.1% generated by the Semiconductor industry, it's much better.

See our latest analysis for Malaysian Pacific Industries Berhad

Above you can see how the current ROCE for Malaysian Pacific Industries Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Malaysian Pacific Industries Berhad for free.

The Trend Of ROCE

There are better returns on capital out there than what we're seeing at Malaysian Pacific Industries Berhad. Over the past five years, ROCE has remained relatively flat at around 9.3% and the business has deployed 57% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In conclusion, Malaysian Pacific Industries Berhad has been investing more capital into the business, but returns on that capital haven't increased. Yet to long term shareholders the stock has gifted them an incredible 104% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

If you're still interested in Malaysian Pacific Industries Berhad it's worth checking out our FREE intrinsic value approximation for MPI to see if it's trading at an attractive price in other respects.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.