What are the early trends we should look for to identify a stock that could multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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 DFCITY Group Berhad (KLSE:DFCITY) 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. Analysts use this formula to calculate it for DFCITY Group Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.032 = RM2.0m ÷ (RM85m - RM22m) (Based on the trailing twelve months to December 2024).
Therefore, DFCITY Group Berhad has an ROCE of 3.2%. In absolute terms, that's a low return and it also under-performs the Basic Materials industry average of 7.0%.
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
DFCITY Group Berhad has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 3.2%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. 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. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.
Our Take On DFCITY Group Berhad's ROCE
To bring it all together, DFCITY Group Berhad has done well to increase the returns it's generating from its capital employed. And since the stock has fallen 21% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.
DFCITY Group Berhad does have some risks, we noticed 3 warning signs (and 2 which are significant) we think you should know about.
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.
Valuation is complex, but we're here to simplify it.
Discover if DFCITY Group Berhad might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.