Returns On Capital At Superlon Holdings Berhad (KLSE:SUPERLN) Have Hit The Brakes

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. However, after briefly looking over the numbers, we don't think Superlon Holdings Berhad (KLSE:SUPERLN) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Superlon Holdings Berhad:

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

0.086 = RM16m ÷ (RM205m - RM18m) (Based on the trailing twelve months to October 2024).

Thus, Superlon Holdings Berhad has an ROCE of 8.6%. In absolute terms, that's a low return but it's around the Building industry average of 7.5%.

See our latest analysis for Superlon Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Superlon Holdings Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Superlon Holdings Berhad.

The Trend Of ROCE

The returns on capital haven't changed much for Superlon Holdings Berhad in recent years. Over the past five years, ROCE has remained relatively flat at around 8.6% and the business has deployed 31% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

The Key Takeaway

In conclusion, Superlon Holdings Berhad has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 96% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Superlon Holdings Berhad (of which 1 shouldn't be ignored!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.