Swift Haulage Berhad (KLSE:SWIFT) Could Be Struggling To Allocate Capital
If you're looking for a multi-bagger, there's a few things to keep an eye out for. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Having said that, from a first glance at Swift Haulage Berhad (KLSE:SWIFT) 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. Analysts use this formula to calculate it for Swift Haulage Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.053 = RM75m ÷ (RM1.7b - RM305m) (Based on the trailing twelve months to March 2025).
Thus, Swift Haulage Berhad has an ROCE of 5.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.3%.
Check out our latest analysis for Swift Haulage Berhad
Above you can see how the current ROCE for Swift Haulage Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Swift Haulage Berhad for free.
On the surface, the trend of ROCE at Swift Haulage Berhad doesn't inspire confidence. To be more specific, ROCE has fallen from 9.6% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
On a related note, Swift Haulage Berhad has decreased its current liabilities to 18% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.
Bringing it all together, while we're somewhat encouraged by Swift Haulage Berhad's reinvestment in its own business, we're aware that returns are shrinking. Since the stock has declined 41% over the last three years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.
If you'd like to know more about Swift Haulage Berhad, we've spotted 4 warning signs, and 1 of them doesn't sit too well with us.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.
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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