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

If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So, when we ran our eye over Press Metal Aluminium Holdings Berhad's (KLSE:PMETAL) trend of ROCE, we liked what we saw.

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

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. 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)

0.15 = RM1.8b ÷ (RM15b - RM2.5b) (Based on the trailing twelve months to March 2023).

Thus, Press Metal Aluminium Holdings Berhad has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Metals and Mining industry average of 9.0% it's much better.

Check out our latest analysis for Press Metal Aluminium Holdings Berhad

Above you can see how the current ROCE for Press Metal Aluminium Holdings Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Press Metal Aluminium Holdings Berhad.

The Trend Of ROCE

While the returns on capital are good, they haven't moved much. The company has employed 102% more capital in the last five years, and the returns on that capital have remained stable at 15%. 15% is a pretty standard return, and it provides some comfort knowing that Press Metal Aluminium Holdings Berhad has consistently earned this amount. 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.

The Bottom Line

To sum it up, Press Metal Aluminium Holdings Berhad has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 150% return over the last five years, so long term investors are no doubt ecstatic with that result. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you'd like to know about the risks facing Press Metal Aluminium Holdings Berhad, we've discovered 1 warning sign that you should be aware of.

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.