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'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. So when we looked at the ROCE trend of Malaysia Smelting Corporation Berhad (KLSE:MSC) we really liked what we saw.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Malaysia Smelting Corporation Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.35 = RM283m ÷ (RM1.4b - RM575m) (Based on the trailing twelve months to June 2022).
So, Malaysia Smelting Corporation Berhad has an ROCE of 35%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 13%.
View our latest analysis for Malaysia Smelting Corporation Berhad
Above you can see how the current ROCE for Malaysia Smelting 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.
The Trend Of ROCE
The trends we've noticed at Malaysia Smelting Corporation Berhad are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 35%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 112%. So we're very much inspired by what we're seeing at Malaysia Smelting Corporation Berhad thanks to its ability to profitably reinvest capital.
On a side note, Malaysia Smelting Corporation Berhad's current liabilities are still rather high at 42% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
The Bottom Line On Malaysia Smelting Corporation Berhad's ROCE
All in all, it's terrific to see that Malaysia Smelting Corporation Berhad is reaping the rewards from prior investments and is growing its capital base. And with a respectable 71% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. Therefore, we think it would be worth your time to check if these trends are going to continue.