Is Warisan TC Holdings Berhad's (KLSE:WARISAN) Financial Future in Jeopardy?

What financial metrics can indicate to us that a company is maturing or even in decline? When we see a declining return on capital employed (ROCE) in conjunction with a decreasing base of capital employed, that's often how a mature business shows signs of aging. On that note, the trends we've observed in the latest financial data for Warisan TC Holdings Berhad (KLSE:WARISAN) aren't encouraging, to say the least. But, there's more to it than that.

Returns On Capital Employed (ROCE) is a metric that can be used to gauge the profitability of a business from its current capital employed. Return on capital employed is calculated based on the company's earnings before interest and tax (EBIT) - the earnings from its main operations - over its capital employed. As a whole, it's a helpful metric that can be used to understand a business' profitability. Therefore, when we looked at Warisan TC Holdings Berhad's ROCE trend over time, we didn't gain much confidence.

The Return on Capital Employed (ROCE) for Warisan TC Holdings Berhad (KLSE:WARISAN) declined dramatically in the last reported year to 5.5%. However, this is not the only factor that investors need to take into account, but the decrease is reason for attention since this has been constant in the last few years.

On the surface, Warisan TC Holdings Berhad's ROCE decline, in absolute terms, is unimpressive. However, we must remember to consider the base effect from the previous year since the base can make the following year's data seem better or worse than it truly is. So when examining Warisan TC Holdings Berhad's' period-to-period underlying trends, we're more amazed that the variation occurred while the base of capital employed (3.54 billion MYR) reduced by 19% from the last year.

Since the ROCE for Warisan TC Holdings Berhad (KLSE:WARISAN) has continued to slow over the last few years, that might be somewhat concerning. The key for investors is that the overall earnings trend is even more temporary as there's been a decrease in both earnings and the amount of capital employed - indicating a business that might be mature.