TMC Life Sciences Berhad (KLSE:TMCLIFE) Shareholders Will Want The ROCE Trajectory To Continue

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at TMC Life Sciences Berhad (KLSE:TMCLIFE) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for TMC Life Sciences Berhad:

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

0.021 = RM18m ÷ (RM950m - RM70m) (Based on the trailing twelve months to June 2020).

Thus, TMC Life Sciences Berhad has an ROCE of 2.1%. In absolute terms, that's a low return and it also under-performs the Healthcare industry average of 9.7%.

View our latest analysis for TMC Life Sciences Berhad

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

What Does the ROCE Trend For TMC Life Sciences Berhad Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 2.1%. The amount of capital employed has increased too, by 110%. So we're very much inspired by what we're seeing at TMC Life Sciences Berhad thanks to its ability to profitably reinvest capital.

The Bottom Line On TMC Life Sciences Berhad's ROCE

In summary, it's great to see that TMC Life Sciences Berhad can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And since the stock has fallen 17% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we found 3 warning signs for TMC Life Sciences Berhad (1 is concerning) you should be aware of.

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This article by Simply Wall St is general in nature. 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.
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