Here's What To Make Of Malakoff Corporation Berhad's (KLSE:MALAKOF) Decelerating Rates Of Return

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 Malakoff Corporation Berhad (KLSE:MALAKOF) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

What Is 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. To calculate this metric for Malakoff Corporation Berhad, this is the formula:

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

0.037 = RM618m ÷ (RM20b - RM3.2b) (Based on the trailing twelve months to June 2024).

Thus, Malakoff Corporation Berhad has an ROCE of 3.7%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 6.0%.

View our latest analysis for Malakoff Corporation Berhad

In the above chart we have measured Malakoff Corporation 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 Malakoff Corporation Berhad .

So How Is Malakoff Corporation Berhad's ROCE Trending?

We've noticed that although returns on capital are flat over the last five years, the amount of capital employed in the business has fallen 34% in that same period. To us that doesn't look like a multi-bagger because the company appears to be selling assets and it's returns aren't increasing. In addition to that, since the ROCE doesn't scream "quality" at 3.7%, it's hard to get excited about these developments.

The Bottom Line

It's a shame to see that Malakoff Corporation Berhad is effectively shrinking in terms of its capital base. And investors may be recognizing these trends since the stock has only returned a total of 22% to shareholders over the last five years. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

If you want to know some of the risks facing Malakoff Corporation Berhad we've found 2 warning signs (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

While Malakoff Corporation 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.