Capital Allocation Trends At Synergy House Berhad (KLSE:SYNERGY) Aren't Ideal

If you're looking for a multi-bagger, there's a few things to keep an eye out for. 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. Having said that, while the ROCE is currently high for Synergy House Berhad (KLSE:SYNERGY), we aren't jumping out of our chairs because returns are decreasing.

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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. Analysts use this formula to calculate it for Synergy House Berhad:

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

0.24 = RM36m ÷ (RM237m - RM84m) (Based on the trailing twelve months to June 2025).

Thus, Synergy House Berhad has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 6.7% earned by companies in a similar industry.

View our latest analysis for Synergy House 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Synergy House Berhad.

What The Trend Of ROCE Can Tell Us

In terms of Synergy House Berhad's historical ROCE movements, the trend isn't fantastic. While it's comforting that the ROCE is high, five years ago it was 37%. 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 Synergy House Berhad's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Synergy House Berhad. Despite these promising trends, the stock has collapsed 73% over the last year, so there could be other factors hurting the company's prospects. Therefore, we'd suggest researching the stock further to uncover more about the business.

Synergy House Berhad does have some risks, we noticed 4 warning signs (and 1 which can't be ignored) we think you should know about.

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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.