Bina Darulaman Berhad (KLSE:BDB) Has Some Difficulty Using Its Capital Effectively

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. 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. So after we looked into Bina Darulaman Berhad (KLSE:BDB), the trends above didn't look too great.

We've discovered 3 warning signs about Bina Darulaman Berhad. View them for free.

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 Bina Darulaman Berhad:

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

0.0079 = RM4.3m ÷ (RM809m - RM256m) (Based on the trailing twelve months to December 2024).

Therefore, Bina Darulaman Berhad has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 8.2%.

View our latest analysis for Bina Darulaman Berhad

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

What Can We Tell From Bina Darulaman Berhad's ROCE Trend?

In terms of Bina Darulaman Berhad's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 2.8%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Bina Darulaman Berhad becoming one if things continue as they have.

Our Take On Bina Darulaman Berhad's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a final note, we've found 3 warning signs for Bina Darulaman Berhad that we think you should be aware of.

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. 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.