Returns On Capital At Matang Berhad (KLSE:MATANG) Have Stalled
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Matang Berhad (KLSE:MATANG) 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. The formula for this calculation on Matang Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.022 = RM5.6m ÷ (RM257m - RM2.8m) (Based on the trailing twelve months to December 2022).
So, Matang Berhad has an ROCE of 2.2%. Ultimately, that's a low return and it under-performs the Food industry average of 11%.
See our latest analysis for Matang 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 Matang Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.
How Are Returns Trending?
In terms of Matang Berhad's historical ROCE trend, it doesn't exactly demand attention. The company has employed 35% more capital in the last five years, and the returns on that capital have remained stable at 2.2%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.
In conclusion, Matang Berhad has been investing more capital into the business, but returns on that capital haven't increased. And investors may be recognizing these trends since the stock has only returned a total of 11% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.
One more thing: We've identified 5 warning signs with Matang Berhad (at least 1 which is a bit concerning) , and understanding these would certainly be useful.
While Matang Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.
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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.
Matang Berhad is an investment holding company operating through its subsidiary that develops real estate properties.
Flawless balance sheet with acceptable track record.