Returns On Capital At Hap Seng Consolidated Berhad (KLSE:HAPSENG) Have Hit The Brakes

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. 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.

Understanding 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)

0.12 = RM1.7b ÷ (RM18b - RM4.2b) (Based on the trailing twelve months to June 2022).

Thus, 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%.

Check out the opportunities and risks within the MY Industrials industry.

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.

So How Is Hap Seng Consolidated Berhad's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 12% and the business has deployed 69% more capital into its operations. 12% is a pretty standard return, and it provides some comfort knowing that Hap Seng Consolidated Berhad has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

In Conclusion...

To sum it up, Hap Seng Consolidated Berhad has simply been reinvesting capital steadily, at those decent rates of return. However, despite the favorable fundamentals, the stock has fallen 15% over the last five years, so there might be an opportunity here for astute investors. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

If you'd like to know more about Hap Seng Consolidated Berhad, we've spotted 3 warning signs, and 2 of them are a bit unpleasant.

While Hap Seng Consolidated Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.