What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, we've noticed some promising trends at Formosa Prosonic Industries Berhad (KLSE:FPI) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

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. The formula for this calculation on Formosa Prosonic Industries Berhad is:

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

0.19 = RM98m ÷ (RM614m - RM107m) (Based on the trailing twelve months to March 2023).

So, Formosa Prosonic Industries Berhad has an ROCE of 19%. In absolute terms, that's a satisfactory return, but compared to the Consumer Durables industry average of 9.9% it's much better.

Check out our latest analysis for Formosa Prosonic Industries Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Formosa Prosonic Industries Berhad's ROCE against it's prior returns. If you're interested in investigating Formosa Prosonic Industries Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

Formosa Prosonic Industries Berhad is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 19%. The amount of capital employed has increased too, by 71%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Bottom Line

All in all, it's terrific to see that Formosa Prosonic Industries Berhad is reaping the rewards from prior investments and is growing its capital base. And a remarkable 141% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Formosa Prosonic Industries Berhad can keep these trends up, it could have a bright future ahead.

Formosa Prosonic Industries Berhad does have some risks though, and we've spotted 1 warning sign for Formosa Prosonic Industries Berhad that you might be interested in.

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.

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