22-04-2025
There's Been No Shortage Of Growth Recently For Tek Seng Holdings Berhad's (KLSE:TEKSENG) Returns On Capital
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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 when we looked at Tek Seng Holdings Berhad (KLSE:TEKSENG) and its trend of ROCE, we really liked what we saw.
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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. To calculate this metric for Tek Seng Holdings Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.042 = RM13m ÷ (RM338m - RM32m) (Based on the trailing twelve months to December 2024).
Therefore, Tek Seng Holdings Berhad has an ROCE of 4.2%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 7.9%.
View our latest analysis for Tek Seng Holdings 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're interested in investigating Tek Seng Holdings Berhad's past further, check out this free graph covering Tek Seng Holdings Berhad's past earnings, revenue and cash flow.
We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. The data shows that returns on capital have increased substantially over the last five years to 4.2%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 20%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
In summary, it's great to see that Tek Seng Holdings Berhad can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Investors may not be impressed by the favorable underlying trends yet because over the last five years the stock has only returned 23% to shareholders. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
On a separate note, we've found 2 warning signs for Tek Seng Holdings Berhad you'll probably want to know about.
While Tek Seng Holdings 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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