Investors Will Want Malayan Cement Berhad's (KLSE:MCEMENT) Growth In ROCE To Persist

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Malayan Cement Berhad's (KLSE:MCEMENT) returns on capital, so let's have a look.

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. The formula for this calculation on Malayan Cement Berhad is:

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

0.079 = RM743m ÷ (RM11b - RM1.3b) (Based on the trailing twelve months to September 2024).

Therefore, Malayan Cement Berhad has an ROCE of 7.9%. In absolute terms, that's a low return but it's around the Basic Materials industry average of 7.0%.

Check out our latest analysis for Malayan Cement Berhad

Above you can see how the current ROCE for Malayan Cement Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Malayan Cement Berhad .

What Can We Tell From Malayan Cement Berhad's ROCE Trend?

We're delighted to see that Malayan Cement Berhad 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 7.9% on its capital. And unsurprisingly, like most companies trying to break into the black, Malayan Cement Berhad is utilizing 229% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 12%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Malayan Cement Berhad has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

What We Can Learn From Malayan Cement Berhad's ROCE

To the delight of most shareholders, Malayan Cement Berhad has now broken into profitability. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 44% return over the last five years. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 2 warning signs for Malayan Cement Berhad you'll probably want to know about.

While Malayan Cement Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.