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UMS-Neiken Group Berhad (KLSE:UMSNGB) Will Want To Turn Around Its Return Trends

To find a multi-bagger stock, what are the underlying trends we should look for in a business? 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. 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 UMS-Neiken Group Berhad (KLSE:UMSNGB), it didn't seem to tick all of these boxes.

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. To calculate this metric for UMS-Neiken Group Berhad, this is the formula:

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

0.033 = RM4.1m ÷ (RM132m - RM6.1m) (Based on the trailing twelve months to December 2023).

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So, UMS-Neiken Group Berhad has an ROCE of 3.3%. Ultimately, that's a low return and it under-performs the Electrical industry average of 10%.

View our latest analysis for UMS-Neiken Group Berhad

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roce

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how UMS-Neiken Group Berhad has performed in the past in other metrics, you can view this free graph of UMS-Neiken Group Berhad's past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of UMS-Neiken Group Berhad's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 9.0% over the last five years. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Our Take On UMS-Neiken Group Berhad's ROCE

Bringing it all together, while we're somewhat encouraged by UMS-Neiken Group Berhad's reinvestment in its own business, we're aware that returns are shrinking. And with the stock having returned a mere 35% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

UMS-Neiken Group Berhad does have some risks though, and we've spotted 2 warning signs for UMS-Neiken Group Berhad that you might be interested in.

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.

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.