What financial metrics can indicate to us that a company is maturing or even in decline? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. On that note, looking into Sycal Ventures Berhad (KLSE:SYCAL), we weren't too upbeat about how things were going.
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 Sycal Ventures Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.027 = RM8.3m ÷ (RM446m - RM137m) (Based on the trailing twelve months to June 2024).
Thus, Sycal Ventures Berhad has an ROCE of 2.7%. Ultimately, that's a low return and it under-performs the Construction industry average of 9.4%.
View our latest analysis for Sycal Ventures Berhad
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Sycal Ventures Berhad has performed in the past in other metrics, you can view this free graph of Sycal Ventures Berhad's past earnings, revenue and cash flow.
So How Is Sycal Ventures Berhad's ROCE Trending?
We are a bit worried about the trend of returns on capital at Sycal Ventures Berhad. To be more specific, the ROCE was 3.6% five years ago, but since then it has dropped noticeably. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Sycal Ventures Berhad becoming one if things continue as they have.
Our Take On Sycal Ventures Berhad's ROCE
All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. And long term shareholders have watched their investments stay flat over the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.