Returns On Capital At SWS Capital Berhad (KLSE:SWSCAP) Paint A Concerning Picture

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at SWS Capital Berhad (KLSE:SWSCAP) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

What Is 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 SWS Capital Berhad:

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

0.037 = RM5.7m ÷ (RM209m - RM55m) (Based on the trailing twelve months to March 2023).

So, SWS Capital Berhad has an ROCE of 3.7%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 8.6%.

View our latest analysis for SWS Capital Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for SWS Capital Berhad's ROCE against it's prior returns. If you're interested in investigating SWS Capital Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of SWS Capital Berhad's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 9.7% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On SWS Capital Berhad's ROCE

To conclude, we've found that SWS Capital Berhad is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 60% in the last five years. Therefore based on the analysis done in this article, we don't think SWS Capital Berhad has the makings of a multi-bagger.

SWS Capital Berhad does have some risks though, and we've spotted 3 warning signs for SWS Capital Berhad that you might be interested in.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.