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

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. Although, when we looked at Hap Seng Consolidated Berhad (KLSE:HAPSENG), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed 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)

0.075 = RM1.1b ÷ (RM18b - RM3.5b) (Based on the trailing twelve months to September 2024).

Therefore, Hap Seng Consolidated Berhad has an ROCE of 7.5%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.9%.

See our latest analysis for Hap Seng Consolidated 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're interested in investigating Hap Seng Consolidated Berhad's past further, check out this free graph covering Hap Seng Consolidated Berhad's past earnings, revenue and cash flow.

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

There hasn't been much to report for Hap Seng Consolidated 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. So unless we see a substantial change at Hap Seng Consolidated Berhad in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

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

We can conclude that in regards to Hap Seng Consolidated Berhad's returns on capital employed and the trends, there isn't much change to report on. And in the last five years, the stock has given away 57% so the market doesn't look too hopeful on these trends strengthening any time soon. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

If you want to know some of the risks facing Hap Seng Consolidated Berhad we've found 2 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

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.

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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.