TMC Life Sciences Berhad (KLSE:TMCLIFE) Could Be Struggling To Allocate Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, from a first glance at TMC Life Sciences Berhad (KLSE:TMCLIFE) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for TMC Life Sciences Berhad, this is the formula:

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

0.02 = RM21m ÷ (RM1.1b - RM107m) (Based on the trailing twelve months to December 2024).

Therefore, TMC Life Sciences Berhad has an ROCE of 2.0%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 9.9%.

View our latest analysis for TMC Life Sciences 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 TMC Life Sciences Berhad has performed in the past in other metrics, you can view this free graph of TMC Life Sciences Berhad's past earnings, revenue and cash flow.

What Can We Tell From TMC Life Sciences Berhad's ROCE Trend?

When we looked at the ROCE trend at TMC Life Sciences Berhad, we didn't gain much confidence. To be more specific, ROCE has fallen from 4.1% over the last five years. However it looks like TMC Life Sciences Berhad might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On TMC Life Sciences Berhad's ROCE

In summary, TMC Life Sciences Berhad is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 11% in the last five years. Therefore based on the analysis done in this article, we don't think TMC Life Sciences Berhad has the makings of a multi-bagger.

TMC Life Sciences Berhad does have some risks though, and we've spotted 2 warning signs for TMC Life Sciences 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.

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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.