Investors Could Be Concerned With Ancom Logistics Berhad's (KLSE:ANCOMLB) Returns On Capital
If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Having said that, from a first glance at Ancom Logistics Berhad (KLSE:ANCOMLB) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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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 Ancom Logistics Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.023 = RM1.8m ÷ (RM94m - RM15m) (Based on the trailing twelve months to November 2024).
Therefore, Ancom Logistics Berhad has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Transportation industry average of 7.2%.
Check out our latest analysis for Ancom Logistics 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 Ancom Logistics Berhad has performed in the past in other metrics, you can view this free graph of Ancom Logistics Berhad's past earnings, revenue and cash flow .
Unfortunately, the trend isn't great with ROCE falling from 6.6% five years ago, while capital employed has grown 78%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. It's unlikely that all of the funds raised have been put to work yet, so as a consequence Ancom Logistics Berhad might not have received a full period of earnings contribution from it. Also, we found that by looking at the company's latest EBIT, the figure is within 10% of the previous year's EBIT so you can basically assign the ROCE drop primarily to that capital raise.
In summary, Ancom Logistics Berhad is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 125% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
If you'd like to know more about Ancom Logistics Berhad, we've spotted 3 warning signs, and 2 of them make us uncomfortable.
While Ancom Logistics 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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