Has Asia File Corporation Bhd (KLSE:ASIAFLE) Got What It Takes To Become A Multi-Bagger?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 Asia File Corporation Bhd (KLSE:ASIAFLE) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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

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. To calculate this metric for Asia File Corporation Bhd, this is the formula:

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

0.04 = RM27m ÷ (RM736m - RM56m) (Based on the trailing twelve months to December 2020).

So, Asia File Corporation Bhd has an ROCE of 4.0%. In absolute terms, that's a low return but it's around the Commercial Services industry average of 4.9%.

See our latest analysis for Asia File Corporation Bhd

Historical performance is a great place to start when researching a stock so above you can see the gauge for Asia File Corporation Bhd's ROCE against it's prior returns. If you'd like to look at how Asia File Corporation Bhd has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Asia File Corporation Bhd's ROCE Trending?

When we looked at the ROCE trend at Asia File Corporation Bhd, we didn't gain much confidence. Around five years ago the returns on capital were 16%, but since then they've fallen to 4.0%. 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.

The Bottom Line On Asia File Corporation Bhd's ROCE

We're a bit apprehensive about Asia File Corporation Bhd because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Long term shareholders who've owned the stock over the last five years have experienced a 39% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a final note, we've found 1 warning sign for Asia File Corporation Bhd that we think you should be aware of.

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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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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