Tri-Mode System (M) Berhad (KLSE:TRIMODE) Hasn't Managed To Accelerate Its Returns

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. In light of that, when we looked at Tri-Mode System (M) Berhad (KLSE:TRIMODE) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Tri-Mode System (M) Berhad:

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

0.028 = RM4.1m ÷ (RM168m - RM18m) (Based on the trailing twelve months to September 2024).

Therefore, Tri-Mode System (M) Berhad has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Logistics industry average of 5.4%.

Check out our latest analysis for Tri-Mode System (M) 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Tri-Mode System (M) Berhad.

So How Is Tri-Mode System (M) Berhad's ROCE Trending?

There are better returns on capital out there than what we're seeing at Tri-Mode System (M) Berhad. Over the past five years, ROCE has remained relatively flat at around 2.8% and the business has deployed 58% more capital into its operations. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

In Conclusion...

As we've seen above, Tri-Mode System (M) Berhad's returns on capital haven't increased but it is reinvesting in the business. And investors appear hesitant that the trends will pick up because the stock has fallen 11% in the last five years. Therefore based on the analysis done in this article, we don't think Tri-Mode System (M) Berhad has the makings of a multi-bagger.

One more thing: We've identified 5 warning signs with Tri-Mode System (M) Berhad (at least 3 which are concerning) , and understanding these would certainly be useful.

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.