The Returns On Capital At Malakoff Corporation Berhad (KLSE:MALAKOF) Don't Inspire Confidence

What underlying fundamental trends can indicate that a company might be in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. Having said that, after a brief look, Malakoff Corporation Berhad (KLSE:MALAKOF) we aren't filled with optimism, but let's investigate further.

We've discovered 2 warning signs about Malakoff Corporation Berhad. View them for free.

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. The formula for this calculation on Malakoff Corporation Berhad is:

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

0.049 = RM797m ÷ (RM19b - RM2.6b) (Based on the trailing twelve months to December 2024).

Thus, Malakoff Corporation Berhad has an ROCE of 4.9%. In absolute terms, that's a low return but it's around the Renewable Energy industry average of 6.0%.

Check out 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 .

What Does the ROCE Trend For Malakoff Corporation Berhad Tell Us?

The trend of ROCE at Malakoff Corporation Berhad is showing some signs of weakness. Unfortunately, returns have declined substantially over the last five years to the 4.9% we see today. On top of that, the business is utilizing 29% less capital within its operations. 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.

The Bottom Line On Malakoff Corporation Berhad's ROCE

In summary, it's unfortunate that Malakoff Corporation Berhad is shrinking its capital base and also generating lower returns. Investors must expect better things on the horizon though because the stock has risen 23% in the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Malakoff Corporation Berhad (of which 1 makes us a bit uncomfortable!) that you should know about.

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.