Here’s What To Make Of Press Metal Aluminium Holdings Berhad’s (KLSE:PMETAL) Decelerating Rates Of Return – Yahoo Finance
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we’ll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it’s a business that is reinvesting profits at increasing rates of return. That’s why when we briefly looked at Press Metal Aluminium Holdings Berhad’s (KLSE:PMETAL) ROCE trend, we were pretty happy with what we saw.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you’re unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Press Metal Aluminium Holdings Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.14 = RM1.7b ÷ (RM15b – RM2.5b) (Based on the trailing twelve months to June 2023).
Therefore, Press Metal Aluminium Holdings Berhad has an ROCE of 14%. On its own, that’s a standard return, however it’s much better than the 6.5% generated by the Metals and Mining industry.
View our latest analysis for Press Metal Aluminium Holdings Berhad
In the above chart we have measured Press Metal Aluminium Holdings Berhad’s prior ROCE against its prior performance, but the future is arguably more important. If you’re interested, you can view the analysts predictions in our free report on analyst forecasts for the company.
What The Trend Of ROCE Can Tell Us
While the current returns on capital are decent, they haven’t changed much. The company has employed 102% more capital in the last five years, and the returns on that capital have remained stable at 14%. Since 14% is a moderate ROCE though, it’s good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
One more thing to note, even though ROCE has remained relatively flat over the last five years, the reduction in current liabilities to 17% of total assets, is good to see from a business owner’s perspective. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.
The Bottom Line On Press Metal Aluminium Holdings Berhad’s ROCE
To sum it up, Press Metal Aluminium Holdings Berhad has simply been reinvesting capital steadily, at those decent rates of return. On top of that, the stock has rewarded shareholders with a remarkable 112% return to those who’ve held over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.
One more thing to note, we’ve identified 1 warning sign with Press Metal Aluminium Holdings Berhad and understanding this should be part of your investment process.
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.
