Investors Met With Slowing Returns on Capital At YTL Corporation Berhad (KLSE:YTL)

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. However, after briefly looking over the numbers, we don't think YTL Corporation Berhad (KLSE:YTL) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

Understanding 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. Analysts use this formula to calculate it for YTL Corporation Berhad:

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

0.05 = RM3.1b ÷ (RM77b - RM14b) (Based on the trailing twelve months to March 2023).

Thus, YTL Corporation Berhad has an ROCE of 5.0%. Even though it's in line with the industry average of 5.0%, it's still a low return by itself.

View our latest analysis for YTL Corporation Berhad

Above you can see how the current ROCE for YTL Corporation Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

There hasn't been much to report for YTL Corporation Berhad's returns and its level of capital employed because both metrics have been steady for the past five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect YTL Corporation Berhad to be a multi-bagger going forward. On top of that you'll notice that YTL Corporation Berhad has been paying out a large portion (76%) of earnings in the form of dividends to shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.

The Bottom Line On YTL Corporation Berhad's ROCE

We can conclude that in regards to YTL Corporation Berhad's returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 22% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

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

While YTL 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.