Is Analabs Resources Berhad (KLSE:ANALABS) Set To Make A Turnaround?

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after glancing at the trends within Analabs Resources Berhad (KLSE:ANALABS), we weren't too hopeful.

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 Analabs Resources Berhad, this is the formula:

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

0.017 = RM5.0m ÷ (RM340m - RM48m) (Based on the trailing twelve months to October 2020).

Therefore, Analabs Resources Berhad has an ROCE of 1.7%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 6.5%.

See our latest analysis for Analabs Resources Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Analabs Resources Berhad's ROCE against it's prior returns. If you're interested in investigating Analabs Resources Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of Analabs Resources Berhad's historical ROCE movements, the trend doesn't inspire confidence. To be more specific, the ROCE was 3.4% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Analabs Resources Berhad to turn into a multi-bagger.

The Bottom Line On Analabs Resources Berhad's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. In spite of that, the stock has delivered a 20% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

Analabs Resources Berhad does have some risks, we noticed 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

While Analabs Resources 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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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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