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

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. With that in mind, the ROCE of Press Metal Aluminium Holdings Berhad (KLSE:PMETAL) looks decent, right now, so lets see what the trend of returns can tell us.

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. 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 = RM1.5b ÷ (RM14b - RM4.6b) (Based on the trailing twelve months to December 2021).

Therefore, Press Metal Aluminium Holdings Berhad has an ROCE of 16%. That's a relatively normal return on capital, and it's around the 15% generated by the Metals and Mining industry.

See 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.

What Can We Tell From Press Metal Aluminium Holdings Berhad's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 16% for the last five years, and the capital employed within the business has risen 108% in that time. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

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 long term investors would be thrilled with the 291% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

Press Metal Aluminium Holdings Berhad does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

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.

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

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.