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. Basically the company is earning less on its investments and it is also reducing its total assets. Having said that, after a brief look, SLP Resources Berhad (KLSE:SLP) we aren't filled with optimism, but let's investigate further.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for SLP Resources Berhad, this is the formula:

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

0.06 = RM12m ÷ (RM220m - RM19m) (Based on the trailing twelve months to December 2023).

So, SLP Resources Berhad has an ROCE of 6.0%. Ultimately, that's a low return and it under-performs the Packaging industry average of 8.7%.

See our latest analysis for SLP Resources Berhad

In the above chart we have measured SLP Resources Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for SLP Resources Berhad .

So How Is SLP Resources Berhad's ROCE Trending?

In terms of SLP Resources Berhad's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 14% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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 SLP Resources Berhad to turn into a multi-bagger.

The Key Takeaway

In summary, it's unfortunate that SLP Resources Berhad is generating lower returns from the same amount of capital. Despite the concerning underlying trends, the stock has actually gained 5.9% over the last five years, so it might be that the investors are expecting the trends to reverse. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

SLP Resources Berhad does have some risks, we noticed 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.