Investors Could Be Concerned With GE-Shen Corporation Berhad's (KLSE:GESHEN) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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 GE-Shen Corporation Berhad (KLSE:GESHEN), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for GE-Shen Corporation Berhad, this is the formula:

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

0.12 = RM19m ÷ (RM263m - RM99m) (Based on the trailing twelve months to September 2021).

Therefore, GE-Shen Corporation Berhad has an ROCE of 12%. By itself that's a normal return on capital and it's in line with the industry's average returns of 12%.

View our latest analysis for GE-Shen Corporation Berhad

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

What Does the ROCE Trend For GE-Shen Corporation Berhad Tell Us?

On the surface, the trend of ROCE at GE-Shen Corporation Berhad doesn't inspire confidence. Over the last five years, returns on capital have decreased to 12% from 17% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line On GE-Shen Corporation Berhad's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for GE-Shen Corporation Berhad. These growth trends haven't led to growth returns though, since the stock has fallen 29% over the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

One more thing: We've identified 5 warning signs with GE-Shen Corporation Berhad (at least 2 which can't be ignored) , and understanding these would certainly be useful.

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.