We like these underlying capital return trends at TPC Plus Berhad (KLSE:TPC)

If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should watch out for. Among other things, we will want to see two things; first, growth come back on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. Ultimately, this demonstrates that this is a company that reinvests its earnings at increasing rates of return. So on that note, TPC Plus Berhad (KLSE:TPC) looks quite promising in terms of its capital return trends.

Understanding return on capital employed (ROCE)

Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. To calculate this metric for TPC Plus Berhad, here is the formula:

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

0.059 = 4.8m RM ÷ (239m RM – 158m RM) (Based on the last twelve months to June 2022).

So, TPC Plus Berhad has a ROCE of 5.9%. Ultimately, it’s a poor performer and it underperforms the food industry average by 12%.

Check out our latest analysis for TPC Plus Berhad

rock

Although the past is not indicative of the future, it can be useful to know the historical performance of a company, which is why we have this graph above. If you want to see how TPC Plus Berhad has performed in the past in other metrics, you can see this free chart of past profits, revenue and cash flow.

What can we say about the ROCE trend of TPC Plus Berhad?

Shareholders will be relieved that TPC Plus Berhad has become profitable. While the company was unprofitable in the past, it has now turned the tide and is earning 5.9% on its capital. On top of that, what is interesting is that the amount of capital used remained stable, so the company did not need to invest additional money to generate these higher returns. In the absence of a noticeable increase in capital employed, it is useful to know what the business plans to do in the future with respect to reinvestment and business growth. So if you’re looking for high growth, you’ll want to see a company’s capital employed grow as well.

By the way, we noticed that the improvement in ROCE seems to be partly fueled by an increase in current liabilities. Essentially, the company now has suppliers or short-term creditors funding about 66% of its operations, which is less than ideal. And with current liabilities at these levels, that’s pretty high.

In conclusion…

To sum up, TPC Plus Berhad collects higher returns from the same amount of capital, and that’s impressive. And since the stock has fallen 50% in the last five years, there could be an opportunity here. It therefore seems warranted to do further research on this company and determine whether or not these trends will continue.

One more thing: we have identified 3 warning signs with TPC Plus Berhad (at least 2 which are a bit unpleasant) and understanding them would certainly help.

Although TPC Plus Berhad does not generate the highest yield, check out this free list of companies that achieve high returns on equity with strong balance sheets.

Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

Join a Paid User Research Session
You will receive a $30 Amazon Gift Card for 1 hour of your time while helping us create better investment tools for individual investors like you. register here

About Ellie Cohn

Check Also

Does Phytage Labs Ear Ringing Relief Scam People?

Studies suggest that tinnitus is around 32% in the United States. So, it goes without …