Hextar Industries Berhad (KLSE:HEXIND) Is Experiencing Growth In Returns On Capital

By
Simply Wall St
Published
April 18, 2022
KLSE:HEXIND
Source: Shutterstock

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Hextar Industries Berhad (KLSE:HEXIND) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Hextar Industries Berhad, this is the formula:

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

0.016 = RM4.0m ÷ (RM286m - RM39m) (Based on the trailing twelve months to November 2021).

Therefore, Hextar Industries Berhad has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 5.6%.

See our latest analysis for Hextar Industries Berhad

roce
KLSE:HEXIND Return on Capital Employed April 18th 2022

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'd like to look at how Hextar Industries Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Hextar Industries Berhad has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 1.6% on its capital. And unsurprisingly, like most companies trying to break into the black, Hextar Industries Berhad is utilizing 290% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In Conclusion...

In summary, it's great to see that Hextar Industries Berhad has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 14% over the last five years, there might be an opportunity here. With that in mind, we believe the promising trends warrant this stock for further investigation.

One final note, you should learn about the 2 warning signs we've spotted with Hextar Industries Berhad (including 1 which is a bit concerning) .

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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