The Return Trends At TSR Capital Berhad (KLSE:TSRCAP) Look Promising

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, TSR Capital Berhad (KLSE:TSRCAP) looks quite promising in regards to its trends of return on capital.

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. Analysts use this formula to calculate it for TSR Capital Berhad:

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

0.049 = RM8.2m ÷ (RM243m - RM77m) (Based on the trailing twelve months to September 2024).

Thus, TSR Capital Berhad has an ROCE of 4.9%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 11%.

View our latest analysis for TSR Capital Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for TSR Capital 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 TSR Capital Berhad.

What Can We Tell From TSR Capital Berhad's ROCE Trend?

Like most people, we're pleased that TSR Capital Berhad is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 4.9% which is no doubt a relief for some early shareholders. In regards to capital employed, TSR Capital Berhad is using 22% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. This could potentially mean that the company is selling some of its assets.

On a related note, the company's ratio of current liabilities to total assets has decreased to 32%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line On TSR Capital Berhad's ROCE

From what we've seen above, TSR Capital Berhad has managed to increase it's returns on capital all the while reducing it's capital base. Astute investors may have an opportunity here because the stock has declined 37% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing to note, we've identified 2 warning signs with TSR Capital Berhad and understanding these should be part of your investment process.

While TSR Capital 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.