We Like These Underlying Return On Capital Trends At Telekom Malaysia Berhad (KLSE:TM)

There are a few key trends to look for if we want to identify the next multi-bagger. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. With that in mind, we've noticed some promising trends at Telekom Malaysia Berhad (KLSE:TM) so let's look a bit deeper.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its 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)

0.15 = RM2.2b ÷ (RM21b - RM6.1b) (Based on the trailing twelve months to June 2025).

Therefore, Telekom Malaysia Berhad has an ROCE of 15%. By itself that's a normal return on capital and it's in line with the industry's average returns of 15%.

View 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 analyst report for Telekom Malaysia Berhad .

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

We're pretty happy with how the ROCE has been trending at Telekom Malaysia Berhad. The data shows that returns on capital have increased by 80% over the trailing five years. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. Interestingly, the business may be becoming more efficient because it's applying 22% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

Our Take On Telekom Malaysia Berhad's ROCE

In the end, Telekom Malaysia Berhad has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has returned a staggering 107% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Telekom Malaysia Berhad (of which 1 makes us a bit uncomfortable!) that you should know about.

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.