Yahoo Finance Capital Allocation Trends At Panasonic Manufacturing Malaysia Berhad (KLSE:PANAMY) Aren't Ideal
To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after glancing at the trends within Panasonic Manufacturing Malaysia Berhad (KLSE:PANAMY), we weren't too hopeful.
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 Panasonic Manufacturing Malaysia Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.077 = RM62m ÷ (RM923m - RM118m) (Based on the trailing twelve months to December 2023).
Thus, Panasonic Manufacturing Malaysia Berhad has an ROCE of 7.7%. Even though it's in line with the industry average of 7.7%, it's still a low return by itself.
See our latest analysis for Panasonic Manufacturing Malaysia Berhad
Above you can see how the current ROCE for Panasonic Manufacturing Malaysia Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Panasonic Manufacturing Malaysia Berhad .
What The Trend Of ROCE Can Tell Us
There is reason to be cautious about Panasonic Manufacturing Malaysia Berhad, given the returns are trending downwards. About five years ago, returns on capital were 14%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Panasonic Manufacturing Malaysia Berhad becoming one if things continue as they have.
Our Take On Panasonic Manufacturing Malaysia Berhad's ROCE
In summary, it's unfortunate that Panasonic Manufacturing Malaysia Berhad is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last five years have experienced a 34% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.
If you'd like to know about the risks facing Panasonic Manufacturing Malaysia Berhad, we've discovered 1 warning sign that you should be aware of.
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.
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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.
