Here's What To Make Of Inta Bina Group Berhad's (KLSE:INTA) Returns On Capital

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'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. In light of that, when we looked at Inta Bina Group Berhad (KLSE:INTA) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Inta Bina Group Berhad:

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

0.091 = RM13m ÷ (RM366m - RM218m) (Based on the trailing twelve months to September 2020).

Therefore, Inta Bina Group Berhad has an ROCE of 9.1%. On its own that's a low return, but compared to the average of 5.2% generated by the Construction industry, it's much better.

See our latest analysis for Inta Bina Group Berhad

In the above chart we have measured Inta Bina Group Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Inta Bina Group Berhad here for free.

What The Trend Of ROCE Can Tell Us

On the surface, the trend of ROCE at Inta Bina Group Berhad doesn't inspire confidence. To be more specific, ROCE has fallen from 29% over the last five years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

On a side note, Inta Bina Group Berhad's current liabilities are still rather high at 60% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

The Key Takeaway

From the above analysis, we find it rather worrisome that returns on capital and sales for Inta Bina Group Berhad have fallen, meanwhile the business is employing more capital than it was five years ago. Long term shareholders who've owned the stock over the last three years have experienced a 12% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

If you want to continue researching Inta Bina Group Berhad, you might be interested to know about the 3 warning signs that our analysis has discovered.

While Inta Bina Group Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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