Returns On Capital Signal Difficult Times Ahead For Genting Malaysia Berhad (KLSE:GENM)




  • In Business
  • 2022-11-23 23:39:33Z
  • By Simply Wall St.
 

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? 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. So after glancing at the trends within Genting Malaysia Berhad (KLSE:GENM), we weren't too hopeful.

What Is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Genting Malaysia Berhad is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.019 = RM478m ÷ (RM29b - RM3.0b) (Based on the trailing twelve months to June 2022).

So, Genting Malaysia Berhad has an ROCE of 1.9%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 5.3%.

Check out our latest analysis for Genting Malaysia Berhad

Above you can see how the current ROCE for Genting Malaysia 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 Genting Malaysia Berhad here for free.

How Are Returns Trending?

In terms of Genting Malaysia Berhad's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 4.4% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Genting Malaysia Berhad to turn into a multi-bagger.

The Bottom Line On Genting Malaysia Berhad's ROCE

In summary, it's unfortunate that Genting Malaysia Berhad is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 36% 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.

Genting Malaysia Berhad does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is a bit unpleasant...

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.

Join A Paid User Research Session
You'll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here

COMMENTS

More Related News

There Are Reasons To Feel Uneasy About MINISO Group Holding
There Are Reasons To Feel Uneasy About MINISO Group Holding's (NYSE:MNSO) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term...

Softchoice (TSE:SFTC) Shareholders Will Want The ROCE Trajectory To Continue
Softchoice (TSE:SFTC) Shareholders Will Want The ROCE Trajectory To Continue

What are the early trends we should look for to identify a stock that could multiply in value over the long term...

Some Investors May Be Worried About Beter Bed Holding
Some Investors May Be Worried About Beter Bed Holding's (AMS:BBED) Returns On Capital

What underlying fundamental trends can indicate that a company might be in decline? More often than not, we'll see a...

Investors Will Want Brunel International
Investors Will Want Brunel International's (AMS:BRNL) Growth In ROCE To Persist

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically...

KAP Industrial Holdings (JSE:KAP) Is Looking To Continue Growing Its Returns On Capital
KAP Industrial Holdings (JSE:KAP) Is Looking To Continue Growing Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two...

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Business