What should you look for when trying to find a stock that might significantly increase in value over time? A key indicator is the return on capital employed (ROCE). This metric helps us see how effectively a company is using its capital to generate profits. Simply put, if a company can create more earnings from its investments, it has the potential to grow.
Take, for example, Oriental Food Industries Holdings Berhad (KLSE:OFI). Recent data shows its ROCE stands at a notable 18%. This is impressive, especially compared to the average of just 9.3% in the food sector. Essentially, Oriental Food is making better use of its resources to generate profits.
For those new to the concept, ROCE is calculated by dividing earnings before interest and taxes (EBIT) by total assets minus current liabilities. Here’s how it breaks down for Oriental Food:
Return on Capital Employed = RM52 million ÷ (RM325 million – RM35 million)
ROCE = 0.18 (or 18%)
This figure reflects the company’s ability to earn more from each dollar invested. Over the last five years, Oriental Food has increased its returns on capital significantly and has also expanded the capital it employs by 36%. This trend suggests that the company is consistently finding new opportunities for profitable investment, a hallmark of businesses that deliver substantial returns in the long run.
Investors seem to be taking notice, as the stock has delivered an impressive 252% return over the past five years. This surge shows that the market is recognizing Oriental Food’s efforts and growth potential.
In today’s financial landscape, many experts are keeping an eye on companies like Oriental Food that show strong fundamentals and the ability to reinvest profits. According to a study by McKinsey, companies that maintain a steady focus on capital efficiency tend to outperform their peers in the long run.
Furthermore, the global food industry has been experiencing shifts lately. As consumer preferences evolve, companies that can adapt and innovate will likely thrive. Emerging trends indicate increased demand for healthy and sustainable food products. If Oriental Food continues on its current trajectory, it could capitalize on these trends effectively.
To sum it up, Oriental Food Industries is showing strong signs of growth. Its increasing ROCE and ability to reinvest in its business are factors every investor should consider when evaluating potential long-term investments. Keeping an eye on such companies can help you make informed decisions in today’s dynamic market.
For those interested in more detailed analysis, check out these insights on Oriental Food Industries Holdings Berhad.
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