Yahoo Finance Returns On Capital At Genting Malaysia Berhad (KLSE:GENM) Have Hit The Brakes
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at Genting Malaysia Berhad (KLSE:GENM), it didn't seem to tick all of these boxes.
What Is Return On Capital Employed (ROCE)?
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. The formula for this calculation on Genting Malaysia Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.058 = RM1.5b ÷ (RM30b - RM3.5b) (Based on the trailing twelve months to March 2024).
Thus, Genting Malaysia Berhad has an ROCE of 5.8%. On its own, that's a low figure but it's around the 5.1% average generated by the Hospitality industry.
See 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 to see what analysts are forecasting going forward, you should check out our free analyst report for Genting Malaysia Berhad .
What The Trend Of ROCE Can Tell Us
Over the past five years, Genting Malaysia Berhad's ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Genting Malaysia Berhad to be a multi-bagger going forward. That being the case, it makes sense that Genting Malaysia Berhad has been paying out 86% of its earnings to its shareholders. If the company is in fact lacking growth opportunities, that's one of the viable alternatives for the money.
What We Can Learn From Genting Malaysia Berhad's ROCE
In summary, Genting Malaysia Berhad isn't compounding its earnings but is generating stable returns on the same amount of capital employed. And with the stock having returned a mere 4.2% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.
On a final note, we've found 3 warning signs for Genting Malaysia Berhad that we think you should be aware of.
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.
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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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
