The Returns At Kerjaya Prospek Group Berhad (KLSE:KERJAYA) Aren't Growing

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we’ll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company’s amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Kerjaya Prospek Group Berhad (KLSE:KERJAYA) and its ROCE trend, we weren’t exactly thrilled.

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. Analysts use this formula to calculate it for Kerjaya Prospek Group Berhad:

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

0.16 = RM199m ÷ (RM1.9b – RM662m) (Based on the trailing twelve months to September 2024).

Therefore, Kerjaya Prospek Group Berhad has an ROCE of 16%. On its own, that’s a standard return, however it’s much better than the 11% generated by the Construction industry.

Check out our latest analysis for Kerjaya Prospek Group Berhad

Above you can see how the current ROCE for Kerjaya Prospek Group 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 Kerjaya Prospek Group Berhad for free.

Things have been pretty stable at Kerjaya Prospek Group Berhad, with its capital employed and returns on that capital staying somewhat the same for the last five years. It’s not uncommon to see this when looking at a mature and stable business that isn’t re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Kerjaya Prospek Group Berhad in terms of ROCE and additional investments being made, we wouldn’t hold our breath on it being a multi-bagger. That probably explains why Kerjaya Prospek Group Berhad has been paying out 69% of its earnings as dividends to shareholders. If the company is in fact lacking growth opportunities, that’s one of the viable alternatives for the money.

On another note, while the change in ROCE trend might not scream for attention, it’s interesting that the current liabilities have actually gone up over the last five years. This is intriguing because if current liabilities hadn’t increased to 35% of total assets, this reported ROCE would probably be less than16% because total capital employed would be higher.The 16% ROCE could be even lower if current liabilities weren’t 35% of total assets, because the the formula would show a larger base of total capital employed. So while current liabilities isn’t high right now, keep an eye out in case it increases further, because this can introduce some elements of risk.