Stock Analysis

Investors Could Be Concerned With Ta Ann Holdings Berhad's (KLSE:TAANN) Returns On Capital

KLSE:TAANN
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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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Ta Ann Holdings Berhad (KLSE:TAANN) and its ROCE trend, we weren't exactly thrilled.

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. To calculate this metric for Ta Ann Holdings Berhad, this is the formula:

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

0.062 = RM129m ÷ (RM2.5b - RM473m) (Based on the trailing twelve months to December 2020).

Thus, Ta Ann Holdings Berhad has an ROCE of 6.2%. In absolute terms, that's a low return, but it's much better than the Forestry industry average of 3.2%.

View our latest analysis for Ta Ann Holdings Berhad

roce
KLSE:TAANN Return on Capital Employed April 15th 2021

In the above chart we have measured Ta Ann 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 Ta Ann Holdings Berhad here for free.

The Trend Of ROCE

When we looked at the ROCE trend at Ta Ann Holdings Berhad, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 6.2% from 12% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Ta Ann Holdings Berhad's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Ta Ann Holdings Berhad. However, despite the promising trends, the stock has fallen 16% over the last five years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

On a separate note, we've found 2 warning signs for Ta Ann Holdings Berhad you'll probably want to know about.

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. 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.
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