Returns Are Gaining Momentum At Telekom Malaysia Berhad (KLSE:TM)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Telekom Malaysia Berhad (KLSE:TM) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Telekom Malaysia Berhad, this is the formula:

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

0.16 = RM2.4b ÷ (RM21b - RM6.3b) (Based on the trailing twelve months to September 2024).

So, Telekom Malaysia Berhad has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Telecom industry average of 11% it's much better.

See our latest analysis for Telekom Malaysia Berhad

In the above chart we have measured Telekom Malaysia Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Telekom Malaysia Berhad .

What Does the ROCE Trend For Telekom Malaysia Berhad Tell Us?

Telekom Malaysia Berhad has not disappointed in regards to ROCE growth. The figures show that over the last five years, returns on capital have grown by 32%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, Telekom Malaysia Berhad appears to been achieving more with less, since the business is using 27% less capital to run its operation. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

In Conclusion...

From what we've seen above, Telekom Malaysia Berhad has managed to increase it's returns on capital all the while reducing it's capital base. And a remarkable 101% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Telekom Malaysia Berhad can keep these trends up, it could have a bright future ahead.

On a final note, we've found 1 warning sign for Telekom Malaysia Berhad that we think 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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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.