These Metrics Don't Make Hexza Corporation Berhad (KLSE:HEXZA) Look Too Strong

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. So after we looked into Hexza Corporation Berhad (KLSE:HEXZA), the trends above didn't look too great.

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. The formula for this calculation on Hexza Corporation Berhad is:

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

0.063 = RM17m ÷ (RM283m - RM5.6m) (Based on the trailing twelve months to September 2020).

So, Hexza Corporation Berhad has an ROCE of 6.3%. Even though it's in line with the industry average of 6.5%, it's still a low return by itself.

Check out our latest analysis for Hexza Corporation 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'd like to look at how Hexza Corporation Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

There is reason to be cautious about Hexza Corporation Berhad, given the returns are trending downwards. About five years ago, returns on capital were 8.7%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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 Hexza Corporation Berhad to turn into a multi-bagger.

What We Can Learn From Hexza Corporation Berhad's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. However the stock has delivered a 75% return to shareholders over the last five years, so investors might be expecting the trends to turn around. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now.

If you'd like to know more about Hexza Corporation Berhad, we've spotted 2 warning signs, and 1 of them is a bit unpleasant.

While Hexza Corporation 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.

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