The Returns On Capital At Lotte Chemical Titan Holding Berhad (KLSE:LCTITAN) Don't Inspire Confidence

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. However, after investigating Lotte Chemical Titan Holding Berhad (KLSE:LCTITAN), we don't think it's current trends fit the mold of a multi-bagger.

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. Analysts use this formula to calculate it for Lotte Chemical Titan Holding Berhad:

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

0.074 = RM1.0b ÷ (RM15b - RM993m) (Based on the trailing twelve months to March 2021).

Thus, Lotte Chemical Titan Holding Berhad has an ROCE of 7.4%. Even though it's in line with the industry average of 7.4%, it's still a low return by itself.

View our latest analysis for Lotte Chemical Titan Holding Berhad

In the above chart we have measured Lotte Chemical Titan Holding Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Lotte Chemical Titan Holding Berhad.

How Are Returns Trending?

On the surface, the trend of ROCE at Lotte Chemical Titan Holding Berhad doesn't inspire confidence. Around five years ago the returns on capital were 18%, but since then they've fallen to 7.4%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Lotte Chemical Titan Holding Berhad's ROCE

To conclude, we've found that Lotte Chemical Titan Holding Berhad is reinvesting in the business, but returns have been falling. And in the last three years, the stock has given away 27% so the market doesn't look too hopeful on these trends strengthening any time soon. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know more about Lotte Chemical Titan Holding Berhad, we've spotted 2 warning signs, and 1 of them makes us a bit uncomfortable.

While Lotte Chemical Titan Holding 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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