Malakoff Corporation Berhad (KLSE:MALAKOF) 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. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after investigating Malakoff Corporation Berhad (KLSE:MALAKOF), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.04 = RM855m ÷ (RM24b - RM3.0b) (Based on the trailing twelve months to December 2020).

Thus, Malakoff Corporation Berhad has an ROCE of 4.0%. Ultimately, that's a low return and it under-performs the Renewable Energy industry average of 7.4%.

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, you can check out the forecasts from the analysts covering Malakoff Corporation Berhad here for free.

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 24% in that same period. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. In addition to that, since the ROCE doesn't scream "quality" at 4.0%, it's hard to get excited about these developments.

What We Can Learn From Malakoff Corporation Berhad's ROCE

It's a shame to see that Malakoff Corporation Berhad is effectively shrinking in terms of its capital base. And investors appear hesitant that the trends will pick up because the stock has fallen 30% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One final note, you should learn about the 2 warning signs we've spotted with Malakoff Corporation Berhad (including 1 which is significant) .

While Malakoff Corporation 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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