Be Wary Of Aimflex Berhad (KLSE:AIMFLEX) And Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Aimflex Berhad (KLSE:AIMFLEX), it didn't seem to tick all of these boxes.

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Understanding 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 Aimflex Berhad, this is the formula:

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

0.068 = RM10m ÷ (RM163m - RM15m) (Based on the trailing twelve months to December 2024).

Therefore, Aimflex Berhad has an ROCE of 6.8%. In absolute terms, that's a low return but it's around the Machinery industry average of 7.6%.

Check out our latest analysis for Aimflex Berhad

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 Aimflex Berhad has performed in the past in other metrics, you can view this free graph of Aimflex Berhad's past earnings, revenue and cash flow.

What Can We Tell From Aimflex Berhad's ROCE Trend?

When we looked at the ROCE trend at Aimflex Berhad, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 6.8% from 16% five years ago. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Aimflex Berhad's ROCE

To conclude, we've found that Aimflex Berhad is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 23% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

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While Aimflex Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.