Stock Analysis

Returns On Capital Tell Us A Lot About Greenyield Berhad (KLSE:GREENYB)

KLSE:GREENYB
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Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? 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. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. So after we looked into Greenyield Berhad (KLSE:GREENYB), the trends above didn't look too great.

What is 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. Analysts use this formula to calculate it for Greenyield Berhad:

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

0.094 = RM7.3m ÷ (RM84m - RM6.2m) (Based on the trailing twelve months to December 2020).

So, Greenyield Berhad has an ROCE of 9.4%. In absolute terms, that's a low return, but it's much better than the Food industry average of 7.7%.

Check out our latest analysis for Greenyield Berhad

roce
KLSE:GREENYB Return on Capital Employed March 11th 2021

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 want to delve into the historical earnings, revenue and cash flow of Greenyield Berhad, check out these free graphs here.

The Trend Of ROCE

We are a bit worried about the trend of returns on capital at Greenyield Berhad. About five years ago, returns on capital were 13%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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 Greenyield Berhad becoming one if things continue as they have.

The Bottom Line On Greenyield Berhad's ROCE

In summary, it's unfortunate that Greenyield Berhad is generating lower returns from the same amount of capital. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Like most companies, Greenyield Berhad does come with some risks, and we've found 1 warning sign that you should be aware of.

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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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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