Returns On Capital At Ekovest Berhad (KLSE:EKOVEST) Paint An Interesting Picture

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Ekovest Berhad (KLSE:EKOVEST) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. To calculate this metric for Ekovest Berhad, this is the formula:

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

0.0068 = RM65m ÷ (RM11b - RM1.2b) (Based on the trailing twelve months to December 2020).

Therefore, Ekovest Berhad has an ROCE of 0.7%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 4.9%.

See our latest analysis for Ekovest Berhad

Above you can see how the current ROCE for Ekovest Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

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

When we looked at the ROCE trend at Ekovest Berhad, we didn't gain much confidence. Around five years ago the returns on capital were 3.6%, but since then they've fallen to 0.7%. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

In Conclusion...

From the above analysis, we find it rather worrisome that returns on capital and sales for Ekovest Berhad have fallen, meanwhile the business is employing more capital than it was five years ago. Despite the concerning underlying trends, the stock has actually gained 36% over the last five years, so it might be that the investors are expecting the trends to reverse. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you want to continue researching Ekovest Berhad, you might be interested to know about the 1 warning sign that our analysis has discovered.

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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