Here's What's Concerning About Mr D.I.Y. Group (M) Berhad's (KLSE:MRDIY) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Looking at Mr D.I.Y. Group (M) Berhad (KLSE:MRDIY), it does have a high ROCE right now, but lets see how returns are trending.

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 Mr D.I.Y. Group (M) Berhad:

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

0.28 = RM841m ÷ (RM3.7b - RM736m) (Based on the trailing twelve months to March 2024).

Thus, Mr D.I.Y. Group (M) Berhad has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Specialty Retail industry average of 12%.

View our latest analysis for Mr D.I.Y. Group (M) Berhad

Above you can see how the current ROCE for Mr D.I.Y. Group (M) Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Mr D.I.Y. Group (M) Berhad for free.

So How Is Mr D.I.Y. Group (M) Berhad's ROCE Trending?

When we looked at the ROCE trend at Mr D.I.Y. Group (M) Berhad, we didn't gain much confidence. While it's comforting that the ROCE is high, five years ago it was 37%. 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 Key Takeaway

To conclude, we've found that Mr D.I.Y. Group (M) Berhad is reinvesting in the business, but returns have been falling. Unsurprisingly then, the total return to shareholders over the last three years has been flat. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

While Mr D.I.Y. Group (M) Berhad doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for MRDIY on our platform.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.

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