- Malaysia
- /
- Consumer Durables
- /
- KLSE:NIHSIN
Ni Hsin Resources Berhad (KLSE:NIHSIN) Will Be Hoping To Turn Its Returns On Capital Around
If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Ni Hsin Resources Berhad (KLSE:NIHSIN) 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 Ni Hsin Resources Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.022 = RM2.0m ÷ (RM98m - RM6.4m) (Based on the trailing twelve months to December 2020).
Therefore, Ni Hsin Resources Berhad has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 9.9%.
View our latest analysis for Ni Hsin Resources 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 want to delve into the historical earnings, revenue and cash flow of Ni Hsin Resources Berhad, check out these free graphs here.
The Trend Of ROCE
On the surface, the trend of ROCE at Ni Hsin Resources Berhad doesn't inspire confidence. To be more specific, ROCE has fallen from 5.1% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.
The Bottom Line
From the above analysis, we find it rather worrisome that returns on capital and sales for Ni Hsin Resources Berhad have fallen, meanwhile the business is employing more capital than it was five years ago. Long term shareholders who've owned the stock over the last five years have experienced a 50% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
One more thing, we've spotted 3 warning signs facing Ni Hsin Resources Berhad that you might find interesting.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
When trading stocks or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted
Valuation is complex, but we're here to simplify it.
Discover if Ni Hsin Group Berhad might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisThis 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.
*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
About KLSE:NIHSIN
Ni Hsin Group Berhad
An investment holding company, designs, manufactures, and sells stainless steel kitchenware and cookware products.
Excellent balance sheet low.