The Return Trends At Marine & General Berhad (KLSE:M&G) Look Promising
What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Marine & General Berhad (KLSE:M&G) looks quite promising in regards to its trends of return on capital.
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Marine & General Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.099 = RM70m ÷ (RM842m - RM140m) (Based on the trailing twelve months to October 2024).
So, Marine & General Berhad has an ROCE of 9.9%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 14%.
See our latest analysis for Marine & General Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Marine & General Berhad's ROCE against it's prior returns. If you'd like to look at how Marine & General Berhad has performed in the past in other metrics, you can view this free graph of Marine & General Berhad's past earnings, revenue and cash flow.
We're delighted to see that Marine & General Berhad is reaping rewards from its investments and has now broken into profitability. The company now earns 9.9% on its capital, because four years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.
In summary, we're delighted to see that Marine & General Berhad has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a staggering 275% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.
Marine & General Berhad does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...
While Marine & General 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.
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