Our Take On The Returns On Capital At Marco Holdings Berhad (KLSE:MARCO)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Marco Holdings Berhad (KLSE:MARCO) looks decent, right now, so lets see what the trend of returns can tell us.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Marco Holdings Berhad:

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

0.14 = RM29m ÷ (RM229m - RM16m) (Based on the trailing twelve months to September 2020).

Thus, Marco Holdings Berhad has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Retail Distributors industry average of 7.3% it's much better.

View our latest analysis for Marco Holdings Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Marco Holdings Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Marco Holdings Berhad's ROCE Trending?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has consistently earned 14% for the last five years, and the capital employed within the business has risen 34% in that time. Since 14% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

The main thing to remember is that Marco Holdings Berhad has proven its ability to continually reinvest at respectable rates of return. Despite the good fundamentals, total returns from the stock have been virtually flat over the last five years. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

One more thing: We've identified 3 warning signs with Marco Holdings Berhad (at least 1 which is potentially serious) , and understanding them would certainly be useful.

While Marco Holdings Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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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