CME Group Berhad's (KLSE:CME) Returns On Capital Not Reflecting Well On The Business

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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at CME Group Berhad (KLSE:CME), it didn't seem to tick all of these boxes.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for CME Group Berhad:

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

0.038 = RM2.1m ÷ (RM108m - RM51m) (Based on the trailing twelve months to June 2025).

Therefore, CME Group Berhad has an ROCE of 3.8%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 9.0%.

View our latest analysis for CME Group Berhad

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

How Are Returns Trending?

When we looked at the ROCE trend at CME Group Berhad, we didn't gain much confidence. Around five years ago the returns on capital were 5.1%, but since then they've fallen to 3.8%. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a separate but related note, it's important to know that CME Group Berhad has a current liabilities to total assets ratio of 48%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From CME Group Berhad's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that CME Group Berhad is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 70% over the last five years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

CME Group Berhad does have some risks, we noticed 5 warning signs (and 3 which are potentially serious) we think you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.