APM Automotive Holdings Berhad (KLSE:APM) Hasn't Managed To Accelerate Its Returns

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at APM Automotive Holdings Berhad (KLSE:APM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

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 APM Automotive Holdings Berhad is:

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

0.05 = RM79m ÷ (RM2.0b - RM429m) (Based on the trailing twelve months to September 2023).

So, APM Automotive Holdings Berhad has an ROCE of 5.0%. Ultimately, that's a low return and it under-performs the Auto Components industry average of 8.5%.

Check out our latest analysis for APM Automotive Holdings Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings, revenue and cash flow of APM Automotive Holdings Berhad, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for APM Automotive Holdings Berhad's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect APM Automotive Holdings Berhad to be a multi-bagger going forward.

What We Can Learn From APM Automotive Holdings Berhad's ROCE

We can conclude that in regards to APM Automotive Holdings Berhad's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 25% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for APM Automotive Holdings Berhad (of which 1 is concerning!) that you should know about.

While APM Automotive Holdings 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.