Brite-Tech Berhad (KLSE:BTECH) Has More To Do To Multiply In Value Going Forward

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Brite-Tech Berhad (KLSE:BTECH), it didn't seem to tick all of these boxes.

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 Brite-Tech Berhad:

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

0.074 = RM7.4m ÷ (RM114m - RM14m) (Based on the trailing twelve months to December 2020).

So, Brite-Tech Berhad has an ROCE of 7.4%. In absolute terms, that's a low return, but it's much better than the Commercial Services industry average of 5.1%.

Check out our latest analysis for Brite-Tech Berhad

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 Brite-Tech Berhad, check out these free graphs here.

What Does the ROCE Trend For Brite-Tech Berhad Tell Us?

In terms of Brite-Tech Berhad's historical ROCE trend, it doesn't exactly demand attention. The company has employed 74% more capital in the last five years, and the returns on that capital have remained stable at 7.4%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

Long story short, while Brite-Tech Berhad has been reinvesting its capital, the returns that it's generating haven't increased. Yet to long term shareholders the stock has gifted them an incredible 128% return in the last five years, so the market appears to be rosy about its future. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.

If you'd like to know about the risks facing Brite-Tech Berhad, we've discovered 1 warning sign that you should be aware of.

While Brite-Tech 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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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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