Some Investors May Be Worried About MMS Ventures Berhad's (KLSE:MMSV) Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. Although, when we looked at MMS Ventures Berhad (KLSE:MMSV), it didn't seem to tick all of these boxes.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for MMS Ventures Berhad:

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

0.19 = RM13m ÷ (RM84m - RM16m) (Based on the trailing twelve months to March 2022).

Thus, MMS Ventures Berhad has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 12% generated by the Machinery industry.

View our latest analysis for MMS Ventures 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 MMS Ventures Berhad, check out these free graphs here.

So How Is MMS Ventures Berhad's ROCE Trending?

In terms of MMS Ventures Berhad's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 29% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

In Conclusion...

In summary, despite lower returns in the short term, we're encouraged to see that MMS Ventures Berhad is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 44% over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you'd like to know more about MMS Ventures Berhad, we've spotted 4 warning signs, and 2 of them are significant.

While MMS Ventures 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. 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.