Integrated Logistics Berhad's (KLSE:ILB) Returns On Capital Not Reflecting Well On The Business

What financial metrics can indicate to us that a company is maturing or even in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. On that note, looking into Integrated Logistics Berhad (KLSE:ILB), we weren't too upbeat about how things were going.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Integrated Logistics Berhad is:

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

0.0024 = RM648k ÷ (RM283m - RM9.7m) (Based on the trailing twelve months to September 2021).

So, Integrated Logistics Berhad has an ROCE of 0.2%. Ultimately, that's a low return and it under-performs the Logistics industry average of 5.3%.

Check out our latest analysis for Integrated Logistics Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Integrated Logistics Berhad's ROCE against it's prior returns. If you'd like to look at how Integrated Logistics Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Can We Tell From Integrated Logistics Berhad's ROCE Trend?

In terms of Integrated Logistics Berhad's historical ROCE trend, it isn't fantastic. Unfortunately, returns have declined substantially over the last five years to the 0.2% we see today. In addition to that, Integrated Logistics Berhad is now employing 32% less capital than it was five years ago. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. If these underlying trends continue, we wouldn't be too optimistic going forward.

What We Can Learn From Integrated Logistics Berhad's ROCE

In short, lower returns and decreasing amounts capital employed in the business doesn't fill us with confidence. Investors haven't taken kindly to these developments, since the stock has declined 55% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you'd like to know more about Integrated Logistics Berhad, we've spotted 4 warning signs, and 1 of them shouldn't be ignored.

While Integrated Logistics Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.