If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. So after we looked into Malaysian Resources Corporation Berhad (KLSE:MRCB), the trends above didn't look too great.

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. Analysts use this formula to calculate it for Malaysian Resources Corporation Berhad:

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

0.0067 = RM45m ÷ (RM8.8b - RM2.1b) (Based on the trailing twelve months to December 2023).

Thus, Malaysian Resources Corporation Berhad has an ROCE of 0.7%. Ultimately, that's a low return and it under-performs the Construction industry average of 7.7%.

See our latest analysis for Malaysian Resources Corporation Berhad

Above you can see how the current ROCE for Malaysian Resources 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 analyst report for Malaysian Resources Corporation Berhad .

So How Is Malaysian Resources Corporation Berhad's ROCE Trending?

In terms of Malaysian Resources Corporation Berhad's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 1.5% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Malaysian Resources Corporation Berhad to turn into a multi-bagger.

In Conclusion...

In summary, it's unfortunate that Malaysian Resources Corporation Berhad is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 19% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Malaysian Resources Corporation Berhad does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

While Malaysian Resources 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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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.