KPS Consortium Berhad (KLSE:KPSCB) Hasn't Managed To Accelerate Its Returns

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at KPS Consortium Berhad (KLSE:KPSCB) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. Analysts use this formula to calculate it for KPS Consortium Berhad:

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

0.068 = RM22m ÷ (RM585m - RM261m) (Based on the trailing twelve months to March 2023).

Therefore, KPS Consortium Berhad has an ROCE of 6.8%. In absolute terms, that's a low return but it's around the Trade Distributors industry average of 8.3%.

See our latest analysis for KPS Consortium 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 want to delve into the historical earnings, revenue and cash flow of KPS Consortium Berhad, check out these free graphs here.

SWOT Analysis for KPS Consortium Berhad

What Can We Tell From KPS Consortium Berhad's ROCE Trend?

Things have been pretty stable at KPS Consortium Berhad, with its capital employed and returns on that capital staying somewhat the same for the last 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 KPS Consortium Berhad in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

On a side note, KPS Consortium Berhad's current liabilities are still rather high at 45% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line

We can conclude that in regards to KPS Consortium Berhad's returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 14% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think KPS Consortium Berhad has the makings of a multi-bagger.

KPS Consortium Berhad does have some risks, we noticed 4 warning signs (and 2 which shouldn't be ignored) we think you should know about.

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.