Hwa Tai Industries Berhad's (KLSE:HWATAI) Returns Have Hit A Wall

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. Although, when we looked at Hwa Tai Industries Berhad (KLSE:HWATAI), it didn't seem to tick all of these boxes.

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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. The formula for this calculation on Hwa Tai Industries Berhad is:

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

0.046 = RM2.0m ÷ (RM101m - RM59m) (Based on the trailing twelve months to September 2025).

So, Hwa Tai Industries Berhad has an ROCE of 4.6%. In absolute terms, that's a low return and it also under-performs the Food industry average of 10%.

See our latest analysis for Hwa Tai Industries 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Hwa Tai Industries Berhad.

What Does the ROCE Trend For Hwa Tai Industries Berhad Tell Us?

In terms of Hwa Tai Industries Berhad's historical ROCE trend, it doesn't exactly demand attention. The company has employed 75% more capital in the last five years, and the returns on that capital have remained stable at 4.6%. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a separate but related note, it's important to know that Hwa Tai Industries Berhad has a current liabilities to total assets ratio of 58%, which we'd consider pretty high. 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. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

In Conclusion...

In conclusion, Hwa Tai Industries Berhad has been investing more capital into the business, but returns on that capital haven't increased. And with the stock having returned a mere 13% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

One more thing to note, we've identified 3 warning signs with Hwa Tai Industries Berhad and understanding these should be part of your investment process.

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. 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.