What financial metrics can indicate to us that a company is maturing or even in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. Having said that, after a brief look, Panasonic Manufacturing Malaysia Berhad (KLSE:PANAMY) we aren't filled with optimism, but let's investigate further.

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. To calculate this metric for Panasonic Manufacturing Malaysia Berhad, this is the formula:

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

0.086 = RM72m ÷ (RM941m - RM109m) (Based on the trailing twelve months to June 2024).

So, Panasonic Manufacturing Malaysia Berhad has an ROCE of 8.6%. On its own, that's a low figure but it's around the 10% average generated by the Consumer Durables industry.

View 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'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Panasonic Manufacturing Malaysia Berhad .

What Can We Tell From Panasonic Manufacturing Malaysia Berhad's ROCE Trend?

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 11%, 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. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Panasonic Manufacturing Malaysia Berhad to turn into a multi-bagger.

The Bottom Line

In summary, it's unfortunate that Panasonic Manufacturing Malaysia Berhad is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 35% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a separate note, we've found 1 warning sign for Panasonic Manufacturing Malaysia Berhad you'll probably want to know about.

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.