Complete Logistic Services Berhad (KLSE:COMPLET) Is Reinvesting At Lower Rates Of Return

Did you know there are some financial metrics that can provide clues of a potential 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after briefly looking over the numbers, we don't think Complete Logistic Services Berhad (KLSE:COMPLET) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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 Complete Logistic Services Berhad, this is the formula:

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

0.012 = RM2.3m ÷ (RM199m - RM12m) (Based on the trailing twelve months to June 2021).

So, Complete Logistic Services Berhad has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Logistics industry average of 4.4%.

Check out our latest analysis for Complete Logistic Services Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Complete Logistic Services Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is Complete Logistic Services Berhad's ROCE Trending?

In terms of Complete Logistic Services Berhad's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 1.2% from 13% five years ago. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

What We Can Learn From Complete Logistic Services Berhad's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Complete Logistic Services Berhad have fallen, meanwhile the business is employing more capital than it was five years ago. Since the stock has skyrocketed 379% over the last five years, it looks like investors have high expectations of the stock. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

One more thing, we've spotted 5 warning signs facing Complete Logistic Services Berhad that you might find interesting.

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.

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.

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