Returns At Hextar Industries Berhad (KLSE:HEXIND) Are On The Way Up

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Hextar Industries Berhad's (KLSE:HEXIND) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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 Hextar Industries Berhad:

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

0.024 = RM3.2m ÷ (RM171m - RM38m) (Based on the trailing twelve months to August 2021).

Therefore, Hextar Industries Berhad has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 8.7%.

See our latest analysis for Hextar Industries Berhad

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

What Does the ROCE Trend For Hextar Industries Berhad Tell Us?

We're glad to see that ROCE is heading in the right direction, even if it is still low at the moment. Over the last five years, returns on capital employed have risen substantially to 2.4%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 112%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

The Bottom Line On Hextar Industries Berhad's ROCE

To sum it up, Hextar Industries Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And since the stock has fallen 54% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Hextar Industries Berhad does come with some risks though, we found 5 warning signs in our investment analysis, and 3 of those don't sit too well with us...

While Hextar Industries 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.

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.

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