DFCITY Group Berhad (KLSE:DFCITY) Is Looking To Continue Growing Its Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at DFCITY Group Berhad (KLSE:DFCITY) so let's look a bit deeper.

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What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for DFCITY Group Berhad, this is the formula:

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

0.043 = RM2.7m ÷ (RM85m - RM22m) (Based on the trailing twelve months to March 2025).

Therefore, DFCITY Group Berhad has an ROCE of 4.3%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 7.7%.

See our latest analysis for DFCITY Group Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for DFCITY Group Berhad's ROCE against it's prior returns. If you'd like to look at how DFCITY Group Berhad has performed in the past in other metrics, you can view this free graph of DFCITY Group Berhad's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that DFCITY Group Berhad is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 4.3%, which is always encouraging. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Bottom Line

As discussed above, DFCITY Group Berhad appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Since the stock has only returned 9.8% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So with that in mind, we think the stock deserves further research.

One more thing: We've identified 3 warning signs with DFCITY Group Berhad (at least 1 which makes us a bit uncomfortable) , and understanding these would certainly be useful.

While DFCITY Group 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. 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.