What These Trends Mean At FACB Industries Berhad (KLSE:FACBIND)

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. And from a first read, things don't look too good at FACB Industries Berhad (KLSE:FACBIND), so let's see why.

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 FACB Industries Berhad, this is the formula:

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

0.013 = RM3.1m ÷ (RM251m - RM8.4m) (Based on the trailing twelve months to September 2020).

Thus, FACB Industries Berhad has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Consumer Durables industry average of 12%.

See our latest analysis for FACB Industries Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for FACB Industries Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of FACB Industries Berhad, check out these free graphs here.

What Does the ROCE Trend For FACB Industries Berhad Tell Us?

We are a bit worried about the trend of returns on capital at FACB Industries Berhad. About five years ago, returns on capital were 1.9%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect FACB Industries Berhad to turn into a multi-bagger.

The Bottom Line On FACB Industries Berhad's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. However the stock has delivered a 49% return to shareholders over the last five years, so investors might be expecting the trends to turn around. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

On a final note, we found 2 warning signs for FACB Industries Berhad (1 is a bit concerning) you should be aware of.

While FACB Industries 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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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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