Should We Be Excited About The Trends Of Returns At IFCA MSC Berhad (KLSE:IFCAMSC)?

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. However, after investigating IFCA MSC Berhad (KLSE:IFCAMSC), we don't think it's current trends fit the mold of a multi-bagger.

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

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for IFCA MSC Berhad, this is the formula:

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

0.052 = RM6.2m ÷ (RM136m - RM18m) (Based on the trailing twelve months to September 2020).

So, IFCA MSC Berhad has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Software industry average of 10%.

See 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'd like to look at how IFCA MSC 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 IFCA MSC Berhad's ROCE Trending?

On the surface, the trend of ROCE at IFCA MSC Berhad doesn't inspire confidence. To be more specific, ROCE has fallen from 39% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

The Bottom Line On IFCA MSC Berhad's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for IFCA MSC Berhad have fallen, meanwhile the business is employing more capital than it was five years ago. Long term shareholders who've owned the stock over the last five years have experienced a 44% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

On a final note, we found 3 warning signs for IFCA MSC Berhad (1 makes us a bit uncomfortable) you should be aware of.

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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