Returns At E.A. Technique (M) Berhad (KLSE:EATECH) Are On The Way Up

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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, E.A. Technique (M) Berhad (KLSE:EATECH) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for E.A. Technique (M) Berhad:

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

0.093 = RM23m ÷ (RM545m - RM299m) (Based on the trailing twelve months to December 2021).

Therefore, E.A. Technique (M) Berhad has an ROCE of 9.3%. In absolute terms, that's a low return and it also under-performs the Oil and Gas industry average of 13%.

See our latest analysis for E.A. Technique (M) 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're interested in investigating E.A. Technique (M) Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

So How Is E.A. Technique (M) Berhad's ROCE Trending?

E.A. Technique (M) Berhad has not disappointed in regards to ROCE growth. We found that the returns on capital employed over the last five years have risen by 53%. That's not bad because this tells for every dollar invested (capital employed), the company is increasing the amount earned from that dollar. In regards to capital employed, E.A. Technique (M) Berhad appears to been achieving more with less, since the business is using 58% less capital to run its operation. A business that's shrinking its asset base like this isn't usually typical of a soon to be multi-bagger company.

On a side note, E.A. Technique (M) Berhad's current liabilities are still rather high at 55% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On E.A. Technique (M) Berhad's ROCE

From what we've seen above, E.A. Technique (M) Berhad has managed to increase it's returns on capital all the while reducing it's capital base. And since the stock has dived 93% over the last five years, there may be other factors affecting the company's prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

If you'd like to know more about E.A. Technique (M) Berhad, we've spotted 4 warning signs, and 3 of them make us uncomfortable.

While E.A. Technique (M) 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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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.