Returns On Capital At Uzma Berhad (KLSE:UZMA) Paint An Interesting Picture

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Uzma Berhad (KLSE:UZMA) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Uzma Berhad is:

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

0.035 = RM31m ÷ (RM1.3b - RM369m) (Based on the trailing twelve months to September 2020).

Thus, Uzma Berhad has an ROCE of 3.5%. Ultimately, that's a low return and it under-performs the Energy Services industry average of 8.6%.

See our latest analysis for Uzma Berhad

Above you can see how the current ROCE for Uzma Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

So How Is Uzma Berhad's ROCE Trending?

On the surface, the trend of ROCE at Uzma Berhad doesn't inspire confidence. To be more specific, ROCE has fallen from 11% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Uzma Berhad's ROCE

In summary, Uzma Berhad is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors appear hesitant that the trends will pick up because the stock has fallen 69% in the last five years. Therefore based on the analysis done in this article, we don't think Uzma Berhad has the makings of a multi-bagger.

If you'd like to know more about Uzma Berhad, we've spotted 3 warning signs, and 1 of them doesn't sit too well with us.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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