These Metrics Don't Make Apollo Food Holdings Berhad (KLSE:APOLLO) Look Too Strong

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. And from a first read, things don't look too good at Apollo Food Holdings Berhad (KLSE:APOLLO), so let's see why.

Understanding 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. To calculate this metric for Apollo Food Holdings Berhad, this is the formula:

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

0.078 = RM20m ÷ (RM274m - RM13m) (Based on the trailing twelve months to October 2020).

Therefore, Apollo Food Holdings Berhad has an ROCE of 7.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 7.7%.

See our latest analysis for Apollo Food Holdings 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 Apollo Food Holdings Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Apollo Food Holdings Berhad's ROCE Trending?

In terms of Apollo Food Holdings Berhad's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 16% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Apollo Food Holdings Berhad becoming one if things continue as they have.

The Key Takeaway

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Investors haven't taken kindly to these developments, since the stock has declined 21% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

Apollo Food Holdings Berhad does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those can't be ignored...

While Apollo Food Holdings 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. 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.
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