Tex Cycle Technology (M) Berhad (KLSE:TEXCYCL) Will Want To Turn Around Its Return Trends

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 Tex Cycle Technology (M) Berhad (KLSE:TEXCYCL) 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 Tex Cycle Technology (M) Berhad:

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

0.072 = RM8.8m ÷ (RM126m - RM4.7m) (Based on the trailing twelve months to September 2021).

Therefore, Tex Cycle Technology (M) Berhad has an ROCE of 7.2%. In absolute terms, that's a low return, but it's much better than the Commercial Services industry average of 5.9%.

View our latest analysis for Tex Cycle Technology (M) Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Tex Cycle Technology (M) Berhad's ROCE against it's prior returns. If you're interested in investigating Tex Cycle Technology (M) Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Tex Cycle Technology (M) Berhad's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 7.2% from 12% five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On Tex Cycle Technology (M) Berhad's ROCE

While returns have fallen for Tex Cycle Technology (M) Berhad in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. However, despite the promising trends, the stock has fallen 27% over the last five years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

If you want to know some of the risks facing Tex Cycle Technology (M) Berhad we've found 2 warning signs (1 shouldn't be ignored!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.