The Returns On Capital At Brite-Tech Berhad (KLSE:BTECH) Don't Inspire Confidence

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at Brite-Tech Berhad (KLSE:BTECH) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its 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)

0.064 = RM7.4m ÷ (RM120m - RM5.4m) (Based on the trailing twelve months to December 2021).

So, Brite-Tech Berhad has an ROCE of 6.4%. In absolute terms, that's a low return but it's around the Commercial Services industry average of 6.6%.

Check out our latest analysis for Brite-Tech Berhad

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

How Are Returns Trending?

In terms of Brite-Tech Berhad's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 6.4% from 10% five years ago. However it looks like Brite-Tech Berhad might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

What We Can Learn From Brite-Tech Berhad's ROCE

In summary, Brite-Tech Berhad is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One more thing to note, we've identified 3 warning signs with Brite-Tech Berhad and understanding these should be part of your investment process.

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. 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.