What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Maxis Berhad (KLSE:MAXIS) and its ROCE trend, we weren't exactly thrilled.
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 Maxis Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.11 = RM1.8b ÷ (RM23b - RM6.1b) (Based on the trailing twelve months to September 2024).
So, Maxis Berhad has an ROCE of 11%. That's a relatively normal return on capital, and it's around the 10% generated by the Wireless Telecom industry.
View our latest analysis for Maxis Berhad
Above you can see how the current ROCE for Maxis 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 Maxis Berhad .
So How Is Maxis Berhad's ROCE Trending?
Over the past five years, Maxis Berhad's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Maxis Berhad to be a multi-bagger going forward. That being the case, it makes sense that Maxis Berhad has been paying out 67% of its earnings to its shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.
The Key Takeaway
We can conclude that in regards to Maxis Berhad's returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 16% over the last five years, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
On a separate note, we've found 2 warning signs for Maxis Berhad you'll probably want to know about.