Will Cepatwawasan Group Berhad (KLSE:CEPAT) Multiply In Value Going Forward?

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Cepatwawasan Group Berhad (KLSE:CEPAT) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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. To calculate this metric for Cepatwawasan Group Berhad, this is the formula:

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

0.027 = RM11m ÷ (RM493m - RM86m) (Based on the trailing twelve months to September 2020).

Thus, Cepatwawasan Group Berhad has an ROCE of 2.7%. In absolute terms, that's a low return and it also under-performs the Food industry average of 7.2%.

See our latest analysis for Cepatwawasan Group Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Cepatwawasan Group Berhad's ROCE against it's prior returns. If you're interested in investigating Cepatwawasan Group Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

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

We're a bit concerned with the trends, because the business is applying 32% less capital than it was five years ago and returns on that capital have stayed flat. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. In addition to that, since the ROCE doesn't scream "quality" at 2.7%, it's hard to get excited about these developments.

The Bottom Line On Cepatwawasan Group Berhad's ROCE

It's a shame to see that Cepatwawasan Group Berhad is effectively shrinking in terms of its capital base. And investors may be recognizing these trends since the stock has only returned a total of 2.4% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Cepatwawasan Group Berhad does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored...

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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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