Returns On Capital Are Showing Encouraging Signs At Focus Dynamics Group Berhad (KLSE:FOCUS)

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, we've noticed some promising trends at Focus Dynamics Group Berhad (KLSE:FOCUS) so let's look a bit deeper.

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)

0.088 = RM17m ÷ (RM243m - RM55m) (Based on the trailing twelve months to June 2022).

So, Focus Dynamics Group Berhad has an ROCE of 8.8%. In absolute terms, that's a low return, but it's much better than the Hospitality industry average of 5.5%.

Check out 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 past earnings, revenue and cash flow.

What Can We Tell From Focus Dynamics Group Berhad's ROCE Trend?

Focus Dynamics Group Berhad has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 8.8% on its capital. And unsurprisingly, like most companies trying to break into the black, Focus Dynamics Group Berhad is utilizing 527% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line

In summary, it's great to see that Focus Dynamics Group Berhad has managed to break into profitability and is continuing to reinvest in its business. And since the stock has fallen 53% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 3 warning signs for Focus Dynamics Group Berhad (2 are potentially serious) you should be aware of.

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.