Slowing Rates Of Return At Hap Seng Consolidated Berhad (KLSE:HAPSENG) Leave Little Room For Excitement

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Hap Seng Consolidated Berhad (KLSE:HAPSENG) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Return On Capital Employed (ROCE): What Is It?

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)

0.085 = RM1.3b ÷ (RM19b - RM4.0b) (Based on the trailing twelve months to December 2024).

Therefore, Hap Seng Consolidated Berhad has an ROCE of 8.5%. Even though it's in line with the industry average of 8.1%, it's still a low return by itself.

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 Hap Seng Consolidated Berhad's past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Hap Seng Consolidated Berhad's historical ROCE trend, it doesn't exactly demand attention. Over the past five years, ROCE has remained relatively flat at around 8.5% and the business has deployed 22% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

What We Can Learn From 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. Since the stock has declined 54% over the last five years, investors may not be too optimistic on this trend improving either. 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.

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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.