Malaysian Resources Corporation Berhad (KLSE:MRCB) Shareholders Will Want The ROCE Trajectory To Continue

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. So when we looked at Malaysian Resources Corporation Berhad (KLSE:MRCB) and its trend of ROCE, we really liked what we saw.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Malaysian Resources Corporation Berhad:

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

0.027 = RM188m ÷ (RM9.8b - RM2.8b) (Based on the trailing twelve months to March 2023).

Therefore, Malaysian Resources Corporation Berhad has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Construction industry average of 5.0%.

Check out our latest analysis for Malaysian Resources Corporation Berhad

Above you can see how the current ROCE for Malaysian Resources Corporation Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

The Trend Of ROCE

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The figures show that over the last five years, ROCE has grown 63% whilst employing roughly the same amount of capital. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line

In summary, we're delighted to see that Malaysian Resources Corporation Berhad has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 42% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 2 warning signs for Malaysian Resources Corporation Berhad (1 makes us a bit uncomfortable) you should be aware of.

While Malaysian Resources Corporation 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.