Investors Will Want Malaysia Steel Works (KL) Bhd's (KLSE:MASTEEL) Growth In ROCE To Persist

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Malaysia Steel Works (KL) Bhd (KLSE:MASTEEL) and its trend of ROCE, we really liked what we saw.

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Understanding 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. To calculate this metric for Malaysia Steel Works (KL) Bhd, this is the formula:

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

0.045 = RM49m ÷ (RM2.3b - RM1.2b) (Based on the trailing twelve months to June 2025).

Thus, Malaysia Steel Works (KL) Bhd has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 7.1%.

View our latest analysis for Malaysia Steel Works (KL) Bhd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Malaysia Steel Works (KL) Bhd's ROCE against it's prior returns. If you're interested in investigating Malaysia Steel Works (KL) Bhd's past further, check out this free graph covering Malaysia Steel Works (KL) Bhd's past earnings, revenue and cash flow.

How Are Returns Trending?

We're delighted to see that Malaysia Steel Works (KL) Bhd is reaping rewards from its investments and is now generating some pre-tax profits. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 4.5% on its capital. And unsurprisingly, like most companies trying to break into the black, Malaysia Steel Works (KL) Bhd is utilizing 26% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a separate but related note, it's important to know that Malaysia Steel Works (KL) Bhd has a current liabilities to total assets ratio of 53%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Bottom Line On Malaysia Steel Works (KL) Bhd's ROCE

To the delight of most shareholders, Malaysia Steel Works (KL) Bhd has now broken into profitability. Since the stock has only returned 7.1% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

One final note, you should learn about the 2 warning signs we've spotted with Malaysia Steel Works (KL) Bhd (including 1 which is potentially serious) .

While Malaysia Steel Works (KL) Bhd 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.