Magni-Tech Industries Berhad (KLSE:MAGNI) Will Want To Turn Around Its Return Trends

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Magni-Tech Industries Berhad (KLSE:MAGNI), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Magni-Tech Industries Berhad is:

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

0.18 = RM167m ÷ (RM1.0b - RM96m) (Based on the trailing twelve months to October 2024).

Thus, Magni-Tech Industries Berhad has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 9.2% generated by the Luxury industry.

View our latest analysis for Magni-Tech Industries Berhad

Above you can see how the current ROCE for Magni-Tech Industries Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Magni-Tech Industries Berhad for free.

What Does the ROCE Trend For Magni-Tech Industries Berhad Tell Us?

When we looked at the ROCE trend at Magni-Tech Industries Berhad, we didn't gain much confidence. To be more specific, ROCE has fallen from 23% over the last five years. 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. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Magni-Tech Industries Berhad's ROCE

While returns have fallen for Magni-Tech Industries Berhad in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. In light of this, the stock has only gained 38% over the last five years. Therefore we'd recommend looking further into this stock to confirm if it has the makings of a good investment.

Like most companies, Magni-Tech Industries Berhad does come with some risks, and we've found 1 warning sign that you should be aware of.

While Magni-Tech 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. 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.