Slowing Rates Of Return At Mycron Steel Berhad (KLSE:MYCRON) Leave Little Room For Excitement

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. That's why when we briefly looked at Mycron Steel Berhad's (KLSE:MYCRON) ROCE trend, we were pretty happy with what we saw.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Mycron Steel Berhad, this is the formula:

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

0.13 = RM76m ÷ (RM857m - RM272m) (Based on the trailing twelve months to June 2022).

Thus, Mycron Steel Berhad has an ROCE of 13%. That's a pretty standard return and it's in line with the industry average of 13%.

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 want to delve into the historical earnings, revenue and cash flow of Mycron Steel Berhad, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. The company has employed 47% more capital in the last five years, and the returns on that capital have remained stable at 13%. Since 13% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line

To sum it up, Mycron Steel Berhad has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last five years the stock has declined 40%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

If you want to continue researching Mycron Steel Berhad, you might be interested to know about the 2 warning signs that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.