Stock Analysis

Ta Ann Holdings Berhad (KLSE:TAANN) Hasn't Managed To Accelerate Its Returns

KLSE:TAANN
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There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Ta Ann Holdings Berhad (KLSE:TAANN), it didn't seem to tick all of these boxes.

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. 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)

0.098 = RM211m ÷ (RM2.6b - RM455m) (Based on the trailing twelve months to June 2021).

So, Ta Ann Holdings Berhad has an ROCE of 9.8%. In absolute terms, that's a low return, but it's much better than the Forestry industry average of 4.9%.

See our latest analysis for Ta Ann Holdings Berhad

roce
KLSE:TAANN Return on Capital Employed October 12th 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.

What Does the ROCE Trend For Ta Ann Holdings Berhad Tell Us?

In terms of Ta Ann Holdings Berhad's historical ROCE trend, it doesn't exactly demand attention. The company has consistently earned 9.8% for the last five years, and the capital employed within the business has risen 27% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

Our Take On Ta Ann Holdings Berhad's ROCE

In summary, Ta Ann Holdings Berhad has simply been reinvesting capital and generating the same low rate of return as before. Unsurprisingly, the stock has only gained 12% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with Ta Ann Holdings Berhad (including 1 which is concerning) .

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.

Valuation is complex, but we're helping make it simple.

Find out whether Ta Ann Holdings Berhad is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.

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