TAS Offshore Berhad (KLSE:TAS) Is Experiencing Growth In Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at TAS Offshore Berhad (KLSE:TAS) so let's look a bit deeper.

What is 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 TAS Offshore Berhad, this is the formula:

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

0.045 = RM4.4m ÷ (RM124m - RM27m) (Based on the trailing twelve months to February 2022).

So, TAS Offshore Berhad has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Machinery industry average of 12%.

See our latest analysis for TAS Offshore 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 TAS Offshore Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is TAS Offshore Berhad's ROCE Trending?

We're delighted to see that TAS Offshore Berhad is reaping rewards from its investments and has now broken into profitability. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 4.5% on their capital employed. Additionally, the business is utilizing 46% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

One more thing to note, TAS Offshore Berhad has decreased current liabilities to 22% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

What We Can Learn From TAS Offshore Berhad's ROCE

In the end, TAS Offshore Berhad has proven it's capital allocation skills are good with those higher returns from less amount of capital. And since the stock has fallen 30% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we've found 2 warning signs for TAS Offshore Berhad that we think you should be aware of.

While TAS Offshore 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.