Investors Will Want Mycron Steel Berhad's (KLSE:MYCRON) Growth In ROCE To Persist

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. Speaking of which, we noticed some great changes in Mycron Steel Berhad's (KLSE:MYCRON) 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. Analysts use this formula to calculate it for Mycron Steel Berhad:

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

0.036 = RM21m ÷ (RM807m - RM239m) (Based on the trailing twelve months to March 2024).

Thus, Mycron Steel Berhad has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 6.5%.

Check out our latest analysis for Mycron Steel Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Mycron Steel Berhad's ROCE against it's prior returns. If you'd like to look at how Mycron Steel Berhad has performed in the past in other metrics, you can view this free graph of Mycron Steel Berhad's past earnings, revenue and cash flow.

So How Is Mycron Steel Berhad's ROCE Trending?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 3.6%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 30%. So we're very much inspired by what we're seeing at Mycron Steel Berhad thanks to its ability to profitably reinvest capital.

The Bottom Line On Mycron Steel Berhad's ROCE

To sum it up, Mycron Steel Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a solid 48% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Mycron Steel Berhad can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 2 warning signs with Mycron Steel Berhad and understanding them should be part of your investment process.

While Mycron Steel 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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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com