Be Wary Of IFCA MSC Berhad (KLSE:IFCAMSC) And Its Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating IFCA MSC Berhad (KLSE:IFCAMSC), we don't think it's current trends fit the mold of a multi-bagger.

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 IFCA MSC Berhad:

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

0.064 = RM8.0m ÷ (RM147m - RM23m) (Based on the trailing twelve months to December 2020).

Therefore, IFCA MSC Berhad has an ROCE of 6.4%. Ultimately, that's a low return and it under-performs the Software industry average of 10%.

View our latest analysis for IFCA MSC Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for IFCA MSC Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of IFCA MSC Berhad, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

In terms of IFCA MSC Berhad's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 23% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

The Bottom Line On IFCA MSC Berhad's ROCE

In summary, IFCA MSC Berhad is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 33% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Like most companies, IFCA MSC Berhad does come with some risks, and we've found 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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