Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Turbo-Mech Berhad (KLSE:TURBO) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
Return On Capital Employed (ROCE): What is it?
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. The formula for this calculation on Turbo-Mech Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.021 = RM2.4m ÷ (RM120m - RM4.8m) (Based on the trailing twelve months to March 2021).
Thus, Turbo-Mech Berhad has an ROCE of 2.1%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 6.1%.
Historical performance is a great place to start when researching a stock so above you can see the gauge for Turbo-Mech Berhad's ROCE against it's prior returns. If you'd like to look at how Turbo-Mech Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
What Does the ROCE Trend For Turbo-Mech Berhad Tell Us?
Things have been pretty stable at Turbo-Mech Berhad, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So don't be surprised if Turbo-Mech Berhad doesn't end up being a multi-bagger in a few years time.
The Bottom Line
We can conclude that in regards to Turbo-Mech Berhad's returns on capital employed and the trends, there isn't much change to report on. Unsurprisingly then, the total return to shareholders over the last five years has been flat. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
Like most companies, Turbo-Mech Berhad does come with some risks, and we've found 3 warning signs that you should be aware of.
While Turbo-Mech 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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