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- KLSE:SMISCOR
SMIS Corporation Berhad (KLSE:SMISCOR) Is Achieving High Returns On Its Capital
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. So when we looked at the ROCE trend of SMIS Corporation Berhad (KLSE:SMISCOR) we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for SMIS Corporation Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.23 = RM22m ÷ (RM118m - RM23m) (Based on the trailing twelve months to March 2023).
Thus, SMIS Corporation Berhad has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Auto Components industry average of 9.7%.
View our latest analysis for SMIS Corporation 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 SMIS Corporation Berhad, check out these free graphs here.
What The Trend Of ROCE Can Tell Us
We're delighted to see that SMIS Corporation Berhad is reaping rewards from its investments and has now broken into profitability. The company now earns 23% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.
One more thing to note, SMIS Corporation Berhad has decreased current liabilities to 19% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that SMIS Corporation Berhad has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
In Conclusion...
To bring it all together, SMIS Corporation Berhad has done well to increase the returns it's generating from its capital employed. Since the stock has returned a staggering 101% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
Like most companies, SMIS Corporation Berhad does come with some risks, and we've found 2 warning signs that you should be aware of.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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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.
About KLSE:SMISCOR
SMIS Corporation Berhad
An investment holding company, manufactures and sells automotive braking and motorcycle components in Malaysia, Indonesia, and Thailand.
Flawless balance sheet with acceptable track record.
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