Sycal Ventures Berhad (KLSE:SYCAL) Could Be Struggling To Allocate Capital

What financial metrics can indicate to us that a company is maturing or even in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. And from a first read, things don't look too good at Sycal Ventures Berhad (KLSE:SYCAL), so let's see why.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Sycal Ventures Berhad:

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

0.026 = RM7.9m ÷ (RM457m - RM149m) (Based on the trailing twelve months to December 2023).

Therefore, Sycal Ventures Berhad has an ROCE of 2.6%. Ultimately, that's a low return and it under-performs the Construction industry average of 7.7%.

See our latest analysis for Sycal Ventures Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sycal Ventures Berhad's ROCE against it's prior returns. If you're interested in investigating Sycal Ventures Berhad's past further, check out this free graph covering Sycal Ventures Berhad's past earnings, revenue and cash flow.

How Are Returns Trending?

We are a bit worried about the trend of returns on capital at Sycal Ventures Berhad. To be more specific, the ROCE was 3.4% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Sycal Ventures Berhad to turn into a multi-bagger.

In Conclusion...

In summary, it's unfortunate that Sycal Ventures Berhad is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 21% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you want to know some of the risks facing Sycal Ventures Berhad we've found 4 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

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.