Should We Be Excited About The Trends Of Returns At Fibon Berhad (KLSE:FIBON)?

By
Simply Wall St
Published
September 13, 2020
KLSE:FIBON

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. 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 Fibon Berhad (KLSE:FIBON) 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)?

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 Fibon Berhad:

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

0.037 = RM1.9m ÷ (RM53m - RM2.0m) (Based on the trailing twelve months to May 2020).

Therefore, Fibon Berhad has an ROCE of 3.7%. Ultimately, that's a low return and it under-performs the Electrical industry average of 6.3%.

Check out our latest analysis for Fibon Berhad

roce
KLSE:FIBON Return on Capital Employed September 14th 2020

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 want to delve into the historical earnings, revenue and cash flow of Fibon Berhad, check out these free graphs here.

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

In terms of Fibon Berhad's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 3.7% from 10% five years ago. 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.

Our Take On Fibon Berhad's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for Fibon Berhad have fallen, meanwhile the business is employing more capital than it was five years ago. And long term shareholders have watched their investments stay flat over the last five years. Unless these trends revert to a more positive trajectory, we would look elsewhere.

One final note, you should learn about the 4 warning signs we've spotted with Fibon Berhad (including 2 which is are significant) .

While Fibon Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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.
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