The Returns On Capital At SAM Engineering & Equipment (M) Berhad (KLSE:SAM) Don't Inspire Confidence

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. However, after investigating SAM Engineering & Equipment (M) Berhad (KLSE:SAM), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

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 SAM Engineering & Equipment (M) Berhad:

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

0.11 = RM164m ÷ (RM2.0b - RM515m) (Based on the trailing twelve months to June 2024).

Thus, SAM Engineering & Equipment (M) Berhad has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 7.9% generated by the Machinery industry.

View our latest analysis for SAM Engineering & Equipment (M) Berhad

Above you can see how the current ROCE for SAM Engineering & Equipment (M) Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for SAM Engineering & Equipment (M) Berhad .

The Trend Of ROCE

The trend of ROCE doesn't look fantastic because it's fallen from 14% five years ago, while the business's capital employed increased by 136%. That being said, SAM Engineering & Equipment (M) Berhad raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. It's unlikely that all of the funds raised have been put to work yet, so as a consequence SAM Engineering & Equipment (M) Berhad might not have received a full period of earnings contribution from it.

Our Take On SAM Engineering & Equipment (M) Berhad's ROCE

Bringing it all together, while we're somewhat encouraged by SAM Engineering & Equipment (M) Berhad's reinvestment in its own business, we're aware that returns are shrinking. Yet to long term shareholders the stock has gifted them an incredible 116% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a final note, we've found 1 warning sign for SAM Engineering & Equipment (M) Berhad that we think you should be aware of.

While SAM Engineering & Equipment (M) 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.