The Returns On Capital At Marco Holdings Berhad (KLSE:MARCO) Don't Inspire Confidence

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 Marco Holdings Berhad (KLSE:MARCO), it didn't seem to tick all of these boxes.

What is 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. The formula for this calculation on Marco Holdings Berhad is:

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

0.071 = RM15m ÷ (RM233m - RM15m) (Based on the trailing twelve months to December 2020).

Therefore, Marco Holdings Berhad has an ROCE of 7.1%. In absolute terms, that's a low return, but it's much better than the Retail Distributors industry average of 5.5%.

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.

What Can We Tell From Marco Holdings Berhad's ROCE Trend?

In terms of Marco Holdings Berhad's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 7.1% from 16% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line

Bringing it all together, while we're somewhat encouraged by Marco Holdings Berhad's reinvestment in its own business, we're aware that returns are shrinking. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. Therefore based on the analysis done in this article, we don't think Marco Holdings Berhad has the makings of a multi-bagger.

One more thing: We've identified 3 warning signs with Marco Holdings Berhad (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.

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.

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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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