Will The ROCE Trend At Focus Point Holdings Berhad (KLSE:FOCUSP) Continue?

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Focus Point Holdings Berhad (KLSE:FOCUSP) so let's look a bit deeper.

What is 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 Focus Point Holdings Berhad, this is the formula:

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

0.18 = RM21m ÷ (RM196m - RM80m) (Based on the trailing twelve months to September 2020).

Therefore, Focus Point Holdings Berhad has an ROCE of 18%. 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're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What Can We Tell From Focus Point Holdings Berhad's ROCE Trend?

The trends we've noticed at Focus Point Holdings Berhad are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. The amount of capital employed has increased too, by 88%. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

Another thing to note, Focus Point Holdings Berhad has a high ratio of current liabilities to total assets of 41%. 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. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Focus Point Holdings Berhad's ROCE

To sum it up, Focus Point Holdings Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 705% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Focus Point Holdings Berhad can keep these trends up, it could have a bright future ahead.

Like most companies, Focus Point Holdings Berhad does come with some risks, and we've found 4 warning signs that you should be aware of.

While Focus Point Holdings Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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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