Investors Could Be Concerned With Focus Dynamics Group Berhad's (KLSE:FOCUS) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. However, after investigating Focus Dynamics Group Berhad (KLSE:FOCUS), we don't think it's current trends fit the mold of a multi-bagger.

What Is Return On Capital Employed (ROCE)?

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. Analysts use this formula to calculate it for Focus Dynamics Group Berhad:

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

0.003 = RM537k ÷ (RM230m - RM53m) (Based on the trailing twelve months to June 2024).

Thus, Focus Dynamics Group Berhad has an ROCE of 0.3%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 5.9%.

See our latest analysis for Focus Dynamics Group 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'd like to look at how Focus Dynamics Group Berhad has performed in the past in other metrics, you can view this free graph of Focus Dynamics Group Berhad's past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Focus Dynamics Group Berhad's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 5.4% 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.

What We Can Learn From Focus Dynamics Group Berhad's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Focus Dynamics Group Berhad is reinvesting for growth and has higher sales as a result. Despite these promising trends, the stock has collapsed 84% over the last five years, so there could be other factors hurting the company's prospects. Regardless, reinvestment can pay off in the long run, so we think astute investors may want to look further into this stock.

Focus Dynamics Group Berhad does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those are potentially serious...

While Focus Dynamics Group Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.