What financial metrics can indicate to us that a company is maturing or even in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing 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. And from a first read, things don't look too good at Top Glove Corporation Bhd( KLSE:TOPGLOV ), so let's see why.
Understanding Return On Capital Employed (ROCE)
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Top Glove Corporation Bhd:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.026 = RM150m ÷ (RM6.3b - RM529m) (Based on the trailing twelve months to August 2025) .
Thus, Top Glove Corporation Bhd has an ROCE of 2.6%.Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 7.9%.
View our latest analysis for Top Glove Corporation Bhd
In the above chart we have measured Top Glove Corporation Bhd's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Top Glove Corporation Bhd .
So How Is Top Glove Corporation Bhd's ROCE Trending?
There is reason to be cautious about Top Glove Corporation Bhd, given the returns are trending downwards. About five years ago, returns on capital were 33%, 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Top Glove Corporation Bhd becoming one if things continue as they have.
On a related note, Top Glove Corporation Bhd has decreased its current liabilities to 8.4% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.
In Conclusion...
In summary, it's unfortunate that Top Glove Corporation Bhd is generating lower returns from the same amount of capital. This could explain why the stock has sunk a total of 92% in the last five years. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.
Top Glove Corporation Bhd could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation for TOPGLOV on our platform quite valuable.
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.
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