Stock Analysis

The Returns At Ta Ann Holdings Berhad (KLSE:TAANN) Provide Us With Signs Of What's To Come

KLSE:TAANN
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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing 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.

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. Analysts use this formula to calculate it for Ta Ann Holdings Berhad:

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

0.057 = RM120m ÷ (RM2.6b - RM438m) (Based on the trailing twelve months to September 2020).

So, Ta Ann Holdings Berhad has an ROCE of 5.7%. On its own that's a low return, but compared to the average of 3.7% generated by the Forestry industry, it's much better.

See our latest analysis for Ta Ann Holdings Berhad

roce
KLSE:TAANN Return on Capital Employed January 7th 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.

How Are Returns Trending?

On the surface, the trend of ROCE at Ta Ann Holdings Berhad doesn't inspire confidence. To be more specific, ROCE has fallen from 11% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. 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

While returns have fallen for Ta Ann Holdings Berhad in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 23% in the last five years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

One more thing to note, we've identified 1 warning sign with Ta Ann Holdings Berhad and understanding it should be part of your investment process.

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.

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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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