Sycal Ventures Berhad (KLSE:SYCAL) Will Be Hoping To Turn Its Returns On Capital Around

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Basically the company is earning less on its investments and it is also reducing its total assets. Having said that, after a brief look, Sycal Ventures Berhad (KLSE:SYCAL) we aren't filled with optimism, but let's investigate further.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Sycal Ventures Berhad is:

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

0.02 = RM6.6m ÷ (RM503m - RM170m) (Based on the trailing twelve months to December 2020).

So, Sycal Ventures Berhad has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Construction industry average of 6.2%.

View our latest analysis for Sycal Ventures Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Sycal Ventures Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

There is reason to be cautious about Sycal Ventures Berhad, given the returns are trending downwards. About five years ago, returns on capital were 7.7%, however they're now substantially lower than that as we saw above. 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.

The Bottom Line

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 39% 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.

Sycal Ventures Berhad does have some risks, we noticed 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

While Sycal Ventures 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.

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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.
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