We Like These Underlying Return On Capital Trends At Focus Point Holdings Berhad (KLSE:FOCUSP)

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. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Focus Point Holdings Berhad (KLSE:FOCUSP) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What is it?

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 Focus Point Holdings Berhad, this is the formula:

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

0.15 = RM17m ÷ (RM192m - RM79m) (Based on the trailing twelve months to December 2020).

So, Focus Point Holdings Berhad has an ROCE of 15%. On its own, that's a standard return, however it's much better than the 10% generated by the Healthcare industry.

Check out our latest analysis for Focus Point Holdings Berhad

Above you can see how the current ROCE for Focus Point Holdings Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Focus Point Holdings Berhad.

The Trend Of ROCE

Investors would be pleased with what's happening at Focus Point Holdings Berhad. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 15%. The amount of capital employed has increased too, by 80%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a separate but related note, it's important to know that Focus Point Holdings Berhad has a current liabilities to total assets ratio of 41%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Focus Point Holdings Berhad's ROCE

In summary, it's great to see that Focus Point Holdings Berhad can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 626% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Focus Point Holdings Berhad does have some risks though, and we've spotted 3 warning signs for Focus Point Holdings Berhad that you might be interested in.

While Focus Point 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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