Stock Analysis

Returns At Timberwell Berhad (KLSE:TIMWELL) Are On The Way Up

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If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. So on that note, Timberwell Berhad (KLSE:TIMWELL) looks quite promising in regards to its trends of return on capital.

What Is 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 Timberwell Berhad, this is the formula:

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

0.071 = RM4.9m ÷ (RM73m - RM4.0m) (Based on the trailing twelve months to September 2022).

Therefore, Timberwell Berhad has an ROCE of 7.1%. In absolute terms, that's a low return but it's around the Forestry industry average of 6.4%.

See our latest analysis for Timberwell Berhad

KLSE:TIMWELL Return on Capital Employed February 7th 2023

Historical performance is a great place to start when researching a stock so above you can see the gauge for Timberwell Berhad's ROCE against it's prior returns. If you'd like to look at how Timberwell Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Timberwell Berhad's ROCE Trend?

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. Over the last five years, returns on capital employed have risen substantially to 7.1%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 53%. So we're very much inspired by what we're seeing at Timberwell Berhad thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Timberwell Berhad is reaping the rewards from prior investments and is growing its capital base. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing, we've spotted 3 warning signs facing Timberwell Berhad that you might find interesting.

While Timberwell Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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