Lim Seong Hai Capital Berhad (KLSE:LSH) Might Be Having Difficulty Using Its Capital Effectively

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Having said that, from a first glance at Lim Seong Hai Capital Berhad (KLSE:LSH) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Lim Seong Hai Capital Berhad:

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

0.19 = RM117m ÷ (RM837m - RM209m) (Based on the trailing twelve months to March 2025).

So, Lim Seong Hai Capital Berhad has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 12% generated by the Specialty Retail industry.

Check out our latest analysis for Lim Seong Hai Capital Berhad

In the above chart we have measured Lim Seong Hai Capital Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Lim Seong Hai Capital Berhad .

What The Trend Of ROCE Can Tell Us

The trend of ROCE doesn't look fantastic because it's fallen from 23% five years ago, while the business's capital employed increased by 1,771%. That being said, Lim Seong Hai Capital Berhad raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Lim Seong Hai Capital Berhad's earnings and if they change as a result from the capital raise.

What We Can Learn From Lim Seong Hai Capital Berhad's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Lim Seong Hai Capital Berhad have fallen, meanwhile the business is employing more capital than it was five years ago. Since the stock has skyrocketed 137% over the last three years, it looks like investors have high expectations of the stock. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

Like most companies, Lim Seong Hai Capital Berhad does come with some risks, and we've found 2 warning signs that you should be aware of.

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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.