DFCITY Group Berhad's (KLSE:DFCITY) Returns On Capital Are Heading Higher

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. Speaking of which, we noticed some great changes in DFCITY Group Berhad's (KLSE:DFCITY) returns on capital, so let's have a look.

Understanding 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. 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)

0.011 = RM716k ÷ (RM88m - RM24m) (Based on the trailing twelve months to June 2024).

Thus, DFCITY Group Berhad has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Basic Materials industry average of 5.1%.

See our latest analysis for DFCITY Group Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating DFCITY Group Berhad's past further, check out this free graph covering DFCITY Group Berhad's past earnings, revenue and cash flow.

What Does the ROCE Trend For DFCITY Group Berhad Tell Us?

We're delighted to see that DFCITY Group Berhad is reaping rewards from its investments and has now broken into profitability. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 1.1% on their capital employed. In regards to capital employed, DFCITY Group Berhad is using 24% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. DFCITY Group Berhad could be selling under-performing assets since the ROCE is improving.

The Key Takeaway

In a nutshell, we're pleased to see that DFCITY Group Berhad has been able to generate higher returns from less capital. Given the stock has declined 49% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing: We've identified 4 warning signs with DFCITY Group Berhad (at least 3 which are potentially serious) , and understanding them would certainly be useful.

While DFCITY Group 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.