MMS Ventures Berhad (KLSE:MMSV) Could Be Struggling To Allocate Capital

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after we looked into MMS Ventures Berhad (KLSE:MMSV), the trends above didn't look too great.

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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. To calculate this metric for MMS Ventures Berhad, this is the formula:

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

0.0081 = RM539k ÷ (RM79m - RM12m) (Based on the trailing twelve months to June 2025).

Thus, MMS Ventures Berhad has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 7.7%.

View our latest analysis for MMS Ventures Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for MMS Ventures Berhad's ROCE against it's prior returns. If you're interested in investigating MMS Ventures Berhad's past further, check out this free graph covering MMS Ventures Berhad's past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of MMS Ventures Berhad's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 7.1% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect MMS Ventures Berhad to turn into a multi-bagger.

On a side note, MMS Ventures Berhad's current liabilities have increased over the last five years to 15% of total assets, effectively distorting the ROCE to some degree. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. Keep an eye on this ratio, because the business could encounter some new risks if this metric gets too high.

The Bottom Line

In summary, it's unfortunate that MMS Ventures Berhad is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 38% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

MMS Ventures Berhad does have some risks, we noticed 3 warning signs (and 2 which are potentially serious) we think you should know about.

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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.