Hap Seng Consolidated Berhad (KLSE:HAPSENG) Hasn't Managed To Accelerate Its Returns

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after investigating Hap Seng Consolidated Berhad (KLSE:HAPSENG), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for Hap Seng Consolidated Berhad, this is the formula:

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

0.092 = RM1.2b ÷ (RM17b - RM4.1b) (Based on the trailing twelve months to March 2021).

Therefore, Hap Seng Consolidated Berhad has an ROCE of 9.2%. Even though it's in line with the industry average of 9.1%, it's still a low return by itself.

Check out 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 of past earnings, revenue and cash flow.

The Trend Of ROCE

The returns on capital haven't changed much for Hap Seng Consolidated Berhad in recent years. The company has consistently earned 9.2% for the last five years, and the capital employed within the business has risen 82% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Hap Seng Consolidated Berhad's ROCE

In conclusion, Hap Seng Consolidated Berhad has been investing more capital into the business, but returns on that capital haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 20% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Hap Seng Consolidated Berhad does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

While Hap Seng Consolidated Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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.
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