Hartalega Holdings Berhad (KLSE:HARTA) Will Want To Turn Around Its Return Trends

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. In light of that, when we looked at Hartalega Holdings Berhad (KLSE:HARTA) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Hartalega Holdings Berhad is:

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

0.0092 = RM45m ÷ (RM5.2b - RM302m) (Based on the trailing twelve months to September 2024).

So, Hartalega Holdings Berhad has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Medical Equipment industry average of 8.1%.

View our latest analysis for Hartalega Holdings Berhad

Above you can see how the current ROCE for Hartalega 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, you can check out the forecasts from the analysts covering Hartalega Holdings Berhad for free.

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

When we looked at the ROCE trend at Hartalega Holdings Berhad, we didn't gain much confidence. Around five years ago the returns on capital were 20%, but since then they've fallen to 0.9%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

What We Can Learn From Hartalega Holdings Berhad's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Hartalega Holdings Berhad. And there could be an opportunity here if other metrics look good too, because the stock has declined 14% in the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

One more thing, we've spotted 1 warning sign facing Hartalega Holdings Berhad that you might find interesting.

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.