Focus Dynamics Group Berhad (KLSE:FOCUS) Shareholders Will Want The ROCE Trajectory To Continue

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Focus Dynamics Group Berhad's (KLSE:FOCUS) returns on capital, so let's have a look.

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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. To calculate this metric for Focus Dynamics Group Berhad, this is the formula:

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

0.015 = RM2.8m ÷ (RM252m - RM62m) (Based on the trailing twelve months to December 2024).

Thus, Focus Dynamics Group Berhad has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 7.6%.

Check out our latest analysis for Focus Dynamics Group Berhad

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

How Are Returns Trending?

The fact that Focus Dynamics Group Berhad is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 1.5% which is a sight for sore eyes. In addition to that, Focus Dynamics Group Berhad is employing 328% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 25%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Bottom Line

To the delight of most shareholders, Focus Dynamics Group Berhad has now broken into profitability. Although the company may be facing some issues elsewhere since the stock has plunged 91% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

Focus Dynamics Group Berhad does have some risks, we noticed 3 warning signs (and 2 which can't be ignored) we think you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.