Hap Seng Consolidated Berhad (KLSE:HAPSENG) Has More To Do To Multiply In Value Going Forward

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. With that in mind, the ROCE of Hap Seng Consolidated Berhad (KLSE:HAPSENG) looks decent, right now, so lets see what the trend of returns can tell us.

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. The formula for this calculation on Hap Seng Consolidated Berhad is:

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

0.12 = RM1.6b ÷ (RM18b - RM3.9b) (Based on the trailing twelve months to March 2022).

Therefore, Hap Seng Consolidated Berhad has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Industrials industry average of 13%.

View our latest analysis for Hap Seng Consolidated Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hap Seng Consolidated Berhad's ROCE against it's prior returns. If you'd like to look at how Hap Seng Consolidated Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Hap Seng Consolidated Berhad Tell Us?

While the returns on capital are good, they haven't moved much. The company has consistently earned 12% for the last five years, and the capital employed within the business has risen 67% in that time. 12% is a pretty standard return, and it provides some comfort knowing that Hap Seng Consolidated Berhad has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Hap Seng Consolidated Berhad's ROCE

In the end, Hap Seng Consolidated Berhad has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock hasn't provided much growth to shareholders in the way of total returns. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

On a final note, we've found 3 warning signs for Hap Seng Consolidated Berhad that we think you should be aware of.

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.

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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.