Returns On Capital At YTL Corporation Berhad (KLSE:YTL) Have Hit The Brakes

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. 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.

Return On Capital Employed (ROCE): What Is It?

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

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

0.051 = RM3.0b ÷ (RM72b - RM14b) (Based on the trailing twelve months to December 2022).

So, YTL Corporation Berhad has an ROCE of 5.1%. Even though it's in line with the industry average of 5.1%, it's still a low return by itself.

View our latest analysis for YTL Corporation Berhad

In the above chart we have measured YTL 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 YTL Corporation Berhad here for free.

SWOT Analysis for YTL Corporation Berhad

The Trend Of ROCE

Things have been pretty stable at YTL Corporation Berhad, with its capital employed and returns on that capital staying somewhat the same for the last five years. This tells us the company isn't reinvesting in itself, so it's plausible that it's past the growth phase. So unless we see a substantial change at YTL Corporation Berhad in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. On top of that you'll notice that YTL Corporation Berhad has been paying out a large portion (153%) 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.

What We Can Learn From YTL Corporation Berhad's ROCE

In summary, YTL Corporation Berhad isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And investors appear hesitant that the trends will pick up because the stock has fallen 46% in the last five years. Therefore based on the analysis done in this article, we don't think YTL Corporation Berhad has the makings of a multi-bagger.

If you'd like to know more about YTL Corporation Berhad, we've spotted 3 warning signs, and 2 of them are a bit concerning.

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.