The Return Trends At Telekom Malaysia Berhad (KLSE:TM) Look Promising

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding 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. So when we looked at Telekom Malaysia Berhad (KLSE:TM) and its trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

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

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

0.11 = RM1.9b ÷ (RM23b - RM5.7b) (Based on the trailing twelve months to June 2023).

Therefore, Telekom Malaysia Berhad has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 8.6% generated by the Telecom industry.

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'd like to see what analysts are forecasting going forward, you should check out our free report for Telekom Malaysia Berhad.

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 80% whilst employing roughly the same amount of capital. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. 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.

What We Can Learn From Telekom Malaysia Berhad's ROCE

In summary, we're delighted to see that Telekom Malaysia Berhad has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And with a respectable 83% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

One more thing, we've spotted 1 warning sign facing Telekom Malaysia Berhad that you might find interesting.

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.