There's Been No Shortage Of Growth Recently For Malaysian Pacific Industries Berhad's (KLSE:MPI) Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at Malaysian Pacific Industries Berhad (KLSE:MPI) and its trend of ROCE, we really liked what we saw.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its 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)

0.18 = RM388m ÷ (RM2.8b - RM589m) (Based on the trailing twelve months to September 2021).

Therefore, Malaysian Pacific Industries Berhad has an ROCE of 18%. That's a relatively normal return on capital, and it's around the 15% generated by the Semiconductor industry.

Check out 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 here for free.

So How Is Malaysian Pacific Industries Berhad's ROCE Trending?

The trends we've noticed at Malaysian Pacific Industries Berhad are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 18%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 78%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In Conclusion...

To sum it up, Malaysian Pacific Industries Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

On a final note, we found 2 warning signs for Malaysian Pacific Industries Berhad (1 is significant) you should be aware of.

While Malaysian Pacific Industries Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.

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