Returns At AYS Ventures Berhad (KLSE:AYS) Appear To Be Weighed Down

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating AYS Ventures Berhad (KLSE:AYS), we don't think it's current trends fit the mold of a multi-bagger.

What Is 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. The formula for this calculation on AYS Ventures Berhad is:

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

0.09 = RM49m ÷ (RM1.1b - RM575m) (Based on the trailing twelve months to March 2024).

Thus, AYS Ventures Berhad has an ROCE of 9.0%. Even though it's in line with the industry average of 9.1%, it's still a low return by itself.

See our latest analysis for AYS Ventures Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for AYS Ventures Berhad's ROCE against it's prior returns. If you're interested in investigating AYS Ventures Berhad's past further, check out this free graph covering AYS Ventures Berhad's past earnings, revenue and cash flow.

So How Is AYS Ventures Berhad's ROCE Trending?

The returns on capital haven't changed much for AYS Ventures Berhad in recent years. Over the past five years, ROCE has remained relatively flat at around 9.0% and the business has deployed 92% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a separate but related note, it's important to know that AYS Ventures Berhad has a current liabilities to total assets ratio of 52%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From AYS Ventures Berhad's ROCE

As we've seen above, AYS Ventures Berhad's returns on capital haven't increased but it is reinvesting in the business. And with the stock having returned a mere 38% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

AYS Ventures Berhad does have some risks, we noticed 4 warning signs (and 1 which is potentially serious) we think you should know about.

While AYS Ventures 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com