Tien Wah Press Holdings Berhad (KLSE:TIENWAH) Will Be Looking To Turn Around Its Returns

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. 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. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. So after we looked into Tien Wah Press Holdings Berhad (KLSE:TIENWAH), the trends above didn't look too great.

Understanding 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. Analysts use this formula to calculate it for Tien Wah Press Holdings Berhad:

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

0.03 = RM12m ÷ (RM487m - RM90m) (Based on the trailing twelve months to December 2020).

Thus, Tien Wah Press Holdings Berhad has an ROCE of 3.0%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 4.7%.

View our latest analysis for Tien Wah Press Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tien Wah Press Holdings Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Tien Wah Press Holdings Berhad, check out these free graphs here.

How Are Returns Trending?

We are a bit worried about the trend of returns on capital at Tien Wah Press Holdings Berhad. About five years ago, returns on capital were 8.3%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Tien Wah Press Holdings Berhad becoming one if things continue as they have.

The Key Takeaway

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors haven't taken kindly to these developments, since the stock has declined 38% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a final note, we found 3 warning signs for Tien Wah Press Holdings Berhad (1 is significant) you should be aware of.

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This article by Simply Wall St is general in nature. 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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