Returns On Capital Signal Tricky Times Ahead For Pentamaster Corporation Berhad (KLSE:PENTA)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. In light of that, when we looked at Pentamaster Corporation Berhad (KLSE:PENTA) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

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 Pentamaster Corporation Berhad is:

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

0.14 = RM141m ÷ (RM1.3b - RM303m) (Based on the trailing twelve months to December 2023).

Thus, Pentamaster Corporation Berhad has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 10.0% generated by the Machinery industry.

See our latest analysis for Pentamaster Corporation Berhad

In the above chart we have measured Pentamaster Corporation 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 Pentamaster Corporation Berhad .

So How Is Pentamaster Corporation Berhad's ROCE Trending?

When we looked at the ROCE trend at Pentamaster Corporation Berhad, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 14% from 21% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Pentamaster Corporation Berhad's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Pentamaster Corporation Berhad is reinvesting for growth and has higher sales as a result. And the stock has done incredibly well with a 174% return over the last five years, so long term investors are no doubt ecstatic with that result. So should these growth trends continue, we'd be optimistic on the stock going forward.

While Pentamaster Corporation Berhad doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for PENTA on our platform.

While Pentamaster 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.