Turbo-Mech Berhad's (KLSE:TURBO) Returns On Capital Not Reflecting Well On The Business
When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. So after glancing at the trends within Turbo-Mech Berhad (KLSE:TURBO), we weren't too hopeful.
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If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Turbo-Mech Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0064 = RM792k ÷ (RM132m - RM7.4m) (Based on the trailing twelve months to December 2024).
Thus, Turbo-Mech Berhad has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 9.6%.
See our latest analysis for Turbo-Mech Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Turbo-Mech Berhad's ROCE against it's prior returns. If you're interested in investigating Turbo-Mech Berhad's past further, check out this free graph covering Turbo-Mech Berhad's past earnings, revenue and cash flow.
We are a bit worried about the trend of returns on capital at Turbo-Mech Berhad. Unfortunately the returns on capital have diminished from the 2.0% that they were earning five years ago. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Turbo-Mech Berhad becoming one if things continue as they have.
In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. It should come as no surprise then that the stock has fallen 15% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.
Turbo-Mech Berhad does come with some risks though, we found 4 warning signs in our investment analysis, and 2 of those are a bit concerning...
While Turbo-Mech Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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