Stock Analysis

Here’s What’s Happening With Returns At Teo Guan Lee Corporation Berhad (KLSE:TGL)

KLSE:TGL
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If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Teo Guan Lee Corporation Berhad's (KLSE:TGL) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

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 Teo Guan Lee Corporation Berhad:

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

0.056 = RM5.6m ÷ (RM120m - RM20m) (Based on the trailing twelve months to September 2020).

So, Teo Guan Lee Corporation Berhad has an ROCE of 5.6%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 10%.

See our latest analysis for Teo Guan Lee Corporation Berhad

roce
KLSE:TGL Return on Capital Employed December 3rd 2020

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're interested in investigating Teo Guan Lee Corporation Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Teo Guan Lee Corporation Berhad's ROCE Trend?

Teo Guan Lee Corporation Berhad's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 129% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. It's worth looking deeper into this though because while it's great that the business is more efficient, it might also mean that going forward the areas to invest internally for the organic growth are lacking.

The Bottom Line

In summary, we're delighted to see that Teo Guan Lee Corporation Berhad has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And given the stock has remained rather flat over the last five years, there might be an opportunity here if other metrics are strong. With that in mind, we believe the promising trends warrant this stock for further investigation.

Teo Guan Lee Corporation Berhad does have some risks though, and we've spotted 1 warning sign for Teo Guan Lee Corporation Berhad that you might be interested in.

While Teo Guan Lee Corporation 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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