Returns On Capital At Press Metal Aluminium Holdings Berhad (KLSE:PMETAL) Have Hit The Brakes

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. That's why when we briefly looked at Press Metal Aluminium Holdings Berhad's (KLSE:PMETAL) ROCE trend, we were pretty happy with what we saw.

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. The formula for this calculation on Press Metal Aluminium Holdings Berhad is:

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

0.16 = RM1.4b ÷ (RM13b - RM4.3b) (Based on the trailing twelve months to September 2021).

Thus, Press Metal Aluminium Holdings Berhad has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 12% generated by the Metals and Mining industry.

View our latest analysis for Press Metal Aluminium Holdings Berhad

In the above chart we have measured Press Metal Aluminium Holdings Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Press Metal Aluminium Holdings Berhad here for free.

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. Over the past five years, ROCE has remained relatively flat at around 16% and the business has deployed 89% more capital into its operations. Since 16% 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.

Our Take On Press Metal Aluminium Holdings Berhad's ROCE

The main thing to remember is that Press Metal Aluminium Holdings Berhad has proven its ability to continually reinvest at respectable rates of return. And the stock has done incredibly well with a 488% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Press Metal Aluminium Holdings Berhad does have some risks though, and we've spotted 1 warning sign for Press Metal Aluminium Holdings Berhad that you might be interested in.

While Press Metal Aluminium Holdings 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.