Yahoo Finance NPC Resources Berhad (KLSE:NPC) Shareholders Will Want The ROCE Trajectory To Continue
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 NPC Resources Berhad (KLSE:NPC) so let's look a bit deeper.
Understanding 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. To calculate this metric for NPC Resources Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.022 = RM22m ÷ (RM1.3b - RM334m) (Based on the trailing twelve months to June 2023).
Thus, NPC Resources Berhad has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Food industry average of 6.8%.
View our latest analysis for NPC Resources Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for NPC Resources Berhad's ROCE against it's prior returns. If you're interested in investigating NPC Resources Berhad's past further, check out this free graph of past earnings, revenue and cash flow.
So How Is NPC Resources Berhad's ROCE Trending?
The fact that NPC Resources Berhad is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 2.2% on its capital. And unsurprisingly, like most companies trying to break into the black, NPC Resources Berhad is utilizing 58% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.
One more thing to note, NPC Resources Berhad has decreased current liabilities to 25% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.
In Conclusion...
Long story short, we're delighted to see that NPC Resources Berhad's reinvestment activities have paid off and the company is now profitable. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 2.8% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
One final note, you should learn about the 3 warning signs we've spotted with NPC Resources Berhad (including 2 which don't sit too well with us) .
While NPC Resources 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.
