The Returns At Malaysian Resources Corporation Berhad (KLSE:MRCB) Aren't Growing

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. In light of that, when we looked at Malaysian Resources Corporation Berhad (KLSE:MRCB) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. To calculate this metric for Malaysian Resources Corporation Berhad, this is the formula:

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

0.0064 = RM45m ÷ (RM9.0b - RM2.0b) (Based on the trailing twelve months to September 2024).

Therefore, Malaysian Resources Corporation Berhad has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Construction industry average of 11%.

Check out our latest analysis for Malaysian Resources Corporation Berhad

In the above chart we have measured Malaysian Resources Corporation Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Malaysian Resources Corporation Berhad for free.

The Trend Of ROCE

There hasn't been much to report for Malaysian Resources Corporation Berhad's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Malaysian Resources Corporation Berhad in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. This probably explains why Malaysian Resources Corporation Berhad is paying out 55% of its income to shareholders in the form of dividends. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Bottom Line On Malaysian Resources Corporation Berhad's ROCE

In summary, Malaysian Resources Corporation Berhad isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Since the stock has declined 17% 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 Malaysian Resources Corporation Berhad has the makings of a multi-bagger.

One more thing: We've identified 3 warning signs with Malaysian Resources Corporation Berhad (at least 1 which shouldn't be ignored) , and understanding them would certainly be useful.

While Malaysian Resources Corporation Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.