Our Take On The Returns On Capital At TASCO Berhad (KLSE:TASCO)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after briefly looking over the numbers, we don't think TASCO Berhad (KLSE:TASCO) 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?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on TASCO Berhad is:

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

0.057 = RM44m ÷ (RM906m - RM133m) (Based on the trailing twelve months to September 2020).

Therefore, TASCO Berhad has an ROCE of 5.7%. On its own that's a low return, but compared to the average of 4.6% generated by the Logistics industry, it's much better.

See our latest analysis for TASCO Berhad

In the above chart we have measured TASCO Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering TASCO Berhad here for free.

So How Is TASCO Berhad's ROCE Trending?

When we looked at the ROCE trend at TASCO Berhad, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 5.7% from 9.7% five years ago. However it looks like TASCO Berhad might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On TASCO Berhad's ROCE

To conclude, we've found that TASCO Berhad is reinvesting in the business, but returns have been falling. Yet to long term shareholders the stock has gifted them an incredible 143% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

Like most companies, TASCO Berhad does come with some risks, and we've found 2 warning signs that you should be aware of.

While TASCO 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. 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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