There Are Reasons To Feel Uneasy About PETRONAS Chemicals Group Berhad's (KLSE:PCHEM) Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Having said that, from a first glance at PETRONAS Chemicals Group Berhad (KLSE:PCHEM) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for PETRONAS Chemicals Group Berhad:

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

0.028 = RM1.4b ÷ (RM61b - RM11b) (Based on the trailing twelve months to March 2025).

Therefore, PETRONAS Chemicals Group Berhad has an ROCE of 2.8%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 7.9%.

Check out our latest analysis for PETRONAS Chemicals Group Berhad

In the above chart we have measured PETRONAS Chemicals Group Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for PETRONAS Chemicals Group Berhad .

So How Is PETRONAS Chemicals Group Berhad's ROCE Trending?

In terms of PETRONAS Chemicals Group Berhad's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 7.9% over the last five years. However it looks like PETRONAS Chemicals Group Berhad might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

On a side note, PETRONAS Chemicals Group Berhad's current liabilities have increased over the last five years to 18% of total assets, effectively distorting the ROCE to some degree. Without this increase, it's likely that ROCE would be even lower than 2.8%. Keep an eye on this ratio, because the business could encounter some new risks if this metric gets too high.

The Bottom Line On PETRONAS Chemicals Group Berhad's ROCE

To conclude, we've found that PETRONAS Chemicals Group Berhad is reinvesting in the business, but returns have been falling. And in the last five years, the stock has given away 38% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

On a final note, we've found 2 warning signs for PETRONAS Chemicals Group Berhad that we think you should be aware of.

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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.