Telekom Malaysia Berhad (KLSE:TM) Shareholders Will Want The ROCE Trajectory To Continue

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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Telekom Malaysia Berhad's (KLSE:TM) returns on capital, so let's have a look.

Understanding 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. The formula for this calculation on Telekom Malaysia Berhad is:

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

0.10 = RM1.8b ÷ (RM23b - RM5.4b) (Based on the trailing twelve months to March 2022).

So, Telekom Malaysia Berhad has an ROCE of 10%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Telecom industry average of 13%.

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 report on analyst forecasts for the company.

What Can We Tell From Telekom Malaysia Berhad's ROCE Trend?

Telekom Malaysia Berhad has not disappointed with their ROCE growth. The figures show that over the last five years, ROCE has grown 57% whilst employing roughly the same amount of capital. 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. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Bottom Line On Telekom Malaysia Berhad's ROCE

As discussed above, Telekom Malaysia Berhad appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Astute investors may have an opportunity here because the stock has declined 13% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know about the risks facing Telekom Malaysia Berhad, we've discovered 2 warning signs that you should be aware of.

While Telekom Malaysia 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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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.