Genting Malaysia Berhad (KLSE:GENM) Has More To Do To Multiply In Value Going Forward

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Although, when we looked at Genting Malaysia Berhad (KLSE:GENM), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Genting Malaysia Berhad is:

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

0.049 = RM1.2b ÷ (RM28b - RM3.8b) (Based on the trailing twelve months to March 2023).

Thus, Genting Malaysia Berhad has an ROCE of 4.9%. On its own, that's a low figure but it's around the 5.8% average generated by the Hospitality industry.

See our latest analysis for Genting Malaysia Berhad

In the above chart we have measured Genting Malaysia Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

How Are Returns Trending?

There hasn't been much to report for Genting Malaysia Berhad's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Genting Malaysia Berhad to be a multi-bagger going forward. That probably explains why Genting Malaysia Berhad has been paying out 82% of its earnings as dividends to shareholders. Most shareholders probably know this and own the stock for its dividend.

The Bottom Line On Genting Malaysia Berhad's ROCE

In summary, Genting Malaysia Berhad isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors appear hesitant that the trends will pick up because the stock has fallen 34% in the last five years. Therefore based on the analysis done in this article, we don't think Genting Malaysia Berhad has the makings of a multi-bagger.

One more thing: We've identified 2 warning signs with Genting Malaysia Berhad (at least 1 which is concerning) , and understanding these would certainly be useful.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.