Returns On Capital At Turbo-Mech Berhad (KLSE:TURBO) Have Hit The Brakes

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. 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?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Turbo-Mech Berhad, this is the formula:

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

0.027 = RM3.1m ÷ (RM123m - RM6.2m) (Based on the trailing twelve months to June 2022).

Thus, Turbo-Mech Berhad has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 7.8%.

Check out the opportunities and risks within the MY Trade Distributors industry.

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 want to delve into the historical earnings, revenue and cash flow of Turbo-Mech Berhad, check out these free graphs here.

How Are Returns Trending?

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. Businesses with these traits tend to be mature and steady operations because they're 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.

Our Take On Turbo-Mech Berhad's ROCE

In a nutshell, Turbo-Mech Berhad has been trudging along with the same returns from the same amount of capital over the last five years. And investors may be recognizing these trends since the stock has only returned a total of 6.1% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

On a final note, we found 3 warning signs for Turbo-Mech Berhad (1 is concerning) you should be aware of.

While Turbo-Mech 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.