LTKM Berhad's (KLSE:LTKM) Returns On Capital Not Reflecting Well On The Business

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating LTKM Berhad (KLSE:LTKM), we don't think it's current trends fit the mold of a multi-bagger.

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What Is Return On Capital Employed (ROCE)?

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 LTKM Berhad, this is the formula:

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

0.037 = RM13m ÷ (RM415m - RM60m) (Based on the trailing twelve months to March 2025).

Therefore, LTKM Berhad has an ROCE of 3.7%. In absolute terms, that's a low return and it also under-performs the Food industry average of 9.4%.

View our latest analysis for LTKM 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'd like to look at how LTKM Berhad has performed in the past in other metrics, you can view this free graph of LTKM Berhad's past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of LTKM Berhad's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 3.7% from 6.1% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. 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

We're a bit apprehensive about LTKM Berhad because despite more capital being deployed in the business, returns on that capital and sales have both fallen. In spite of that, the stock has delivered a 27% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

One more thing, we've spotted 2 warning signs facing LTKM Berhad that you might find interesting.

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.