Unique Fire Holdings Berhad (KLSE:UNIQUE) May Have Issues Allocating Its Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. Although, when we looked at Unique Fire Holdings Berhad (KLSE:UNIQUE), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Unique Fire Holdings Berhad:

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

0.083 = RM7.5m ÷ (RM103m - RM12m) (Based on the trailing twelve months to September 2023).

Therefore, Unique Fire Holdings Berhad has an ROCE of 8.3%. Even though it's in line with the industry average of 7.6%, it's still a low return by itself.

Check out our latest analysis for Unique Fire Holdings 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're interested in investigating Unique Fire Holdings Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

In terms of Unique Fire Holdings Berhad's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 17% over the last four years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

The Bottom Line

While returns have fallen for Unique Fire Holdings Berhad in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 40% to shareholders over the last year. So should these growth trends continue, we'd be optimistic on the stock going forward.

Unique Fire Holdings Berhad does have some risks, we noticed 4 warning signs (and 1 which shouldn't be ignored) we think you should know about.

While Unique Fire Holdings 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.