We're Watching These Trends At Ni Hsin Resources Berhad (KLSE:NIHSIN)

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. 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 Ni Hsin Resources Berhad (KLSE:NIHSIN) and its ROCE trend, we weren't exactly thrilled.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Ni Hsin Resources Berhad, this is the formula:

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

0.0093 = RM838k ÷ (RM97m - RM6.6m) (Based on the trailing twelve months to September 2020).

Therefore, Ni Hsin Resources Berhad has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 11%.

See our latest analysis for Ni Hsin Resources Berhad

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

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at Ni Hsin Resources Berhad, we didn't gain much confidence. Around five years ago the returns on capital were 5.0%, but since then they've fallen to 0.9%. Given the business is employing more capital while revenue has slipped, this is a bit concerning. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased.

Our Take On Ni Hsin Resources Berhad's ROCE

In summary, we're somewhat concerned by Ni Hsin Resources Berhad's diminishing returns on increasing amounts of capital. Investors haven't taken kindly to these developments, since the stock has declined 16% from where it was five years ago. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Ni Hsin Resources Berhad does have some risks though, and we've spotted 1 warning sign for Ni Hsin Resources Berhad that you might be interested in.

While Ni Hsin Resources 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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