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

What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at Aimflex Berhad (KLSE:AIMFLEX) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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Understanding 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. Analysts use this formula to calculate it for Aimflex Berhad:

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

0.028 = RM4.1m ÷ (RM160m - RM13m) (Based on the trailing twelve months to June 2025).

Therefore, Aimflex Berhad has an ROCE of 2.8%. Ultimately, that's a low return and it under-performs the Machinery industry average of 9.0%.

Check out our latest analysis for Aimflex Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Aimflex Berhad's ROCE against it's prior returns. 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. Around five years ago the returns on capital were 11%, but since then they've fallen to 2.8%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Key Takeaway

From the above analysis, we find it rather worrisome that returns on capital and sales for Aimflex Berhad have fallen, meanwhile the business is employing more capital than it was five years ago. Investors haven't taken kindly to these developments, since the stock has declined 56% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you want to continue researching Aimflex Berhad, you might be interested to know about the 3 warning signs that our analysis has discovered.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.