Stock Analysis

Returns At Malayan Cement Berhad (KLSE:MCEMENT) Are On The Way Up

KLSE:MCEMENT
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Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Malayan Cement Berhad (KLSE:MCEMENT) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its 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)

0.039 = RM333m ÷ (RM10b - RM1.8b) (Based on the trailing twelve months to March 2023).

Thus, Malayan Cement Berhad has an ROCE of 3.9%. On its own that's a low return on capital but it's in line with the industry's average returns of 3.9%.

Check out our latest analysis for Malayan Cement Berhad

roce
KLSE:MCEMENT Return on Capital Employed July 24th 2023

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'd like, you can check out the forecasts from the analysts covering Malayan Cement Berhad here for free.

The Trend Of ROCE

Malayan Cement Berhad has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 3.9% on its capital. And unsurprisingly, like most companies trying to break into the black, Malayan Cement Berhad is utilizing 164% 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.

The Bottom Line On Malayan Cement Berhad's ROCE

Long story short, we're delighted to see that Malayan Cement Berhad's reinvestment activities have paid off and the company is now profitable. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing, we've spotted 1 warning sign facing Malayan Cement Berhad that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Valuation is complex, but we're helping make it simple.

Find out whether Malayan Cement Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.