21-02-2025
Some Investors May Be Worried About Sycal Ventures Berhad's (KLSE:SYCAL) Returns On Capital
What underlying fundamental trends can indicate that a company might be in decline? 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. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. In light of that, from a first glance at Sycal Ventures Berhad (KLSE:SYCAL), we've spotted some signs that it could be struggling, so let's investigate.
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 Sycal Ventures Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.026 = RM8.2m ÷ (RM484m - RM169m) (Based on the trailing twelve months to September 2024).
Therefore, Sycal Ventures Berhad has an ROCE of 2.6%. Ultimately, that's a low return and it under-performs the Construction industry average of 11%.
View our latest analysis for Sycal Ventures 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Sycal Ventures Berhad.
There is reason to be cautious about Sycal Ventures Berhad, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 4.2% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Sycal Ventures Berhad to turn into a multi-bagger.
All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Investors haven't taken kindly to these developments, since the stock has declined 15% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.
If you want to know some of the risks facing Sycal Ventures Berhad we've found 2 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.
While Sycal Ventures 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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