Here's What To Make Of Brite-Tech Berhad's (KLSE:BTECH) 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at Brite-Tech Berhad (KLSE:BTECH) and its ROCE trend, we weren't exactly thrilled.

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 Brite-Tech Berhad, this is the formula:

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

0.089 = RM8.1m ÷ (RM96m - RM4.6m) (Based on the trailing twelve months to September 2020).

Thus, Brite-Tech Berhad has an ROCE of 8.9%. On its own that's a low return, but compared to the average of 5.2% generated by the Commercial Services industry, it's much better.

See 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 Can We Tell From Brite-Tech Berhad's ROCE Trend?

In terms of Brite-Tech Berhad's historical ROCE trend, it doesn't exactly demand attention. The company has employed 84% more capital in the last five years, and the returns on that capital have remained stable at 8.9%. 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.

Our Take On Brite-Tech Berhad's ROCE

In conclusion, Brite-Tech Berhad has been investing more capital into the business, but returns on that capital haven't increased. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 167% gain to shareholders who have held over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a separate note, we've found 2 warning signs for Brite-Tech Berhad you'll probably want to know about.

While Brite-Tech 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.

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