Returns At Telekom Malaysia Berhad (KLSE:TM) Are On The Way Up

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Telekom Malaysia Berhad's (KLSE:TM) returns on capital, so let's have a look.

Understanding 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. To calculate this metric for Telekom Malaysia Berhad, this is the formula:

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

0.13 = RM2.2b ÷ (RM23b - RM5.9b) (Based on the trailing twelve months to December 2023).

So, Telekom Malaysia Berhad has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.3% generated by the Telecom industry.

View our latest analysis for Telekom Malaysia Berhad

roce

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

So How Is Telekom Malaysia Berhad's ROCE Trending?

Telekom Malaysia Berhad is showing promise given that its ROCE is trending up and to the right. Looking at the data, we can see that even though capital employed in the business has remained relatively flat, the ROCE generated has risen by 62% over the last five years. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

The Key Takeaway

In summary, we're delighted to see that Telekom Malaysia Berhad has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And a remarkable 115% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing Telekom Malaysia Berhad we've found 2 warning signs (1 is significant!) that you should be aware of before investing here.

While Telekom Malaysia Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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.