Returns On Capital Signal Tricky Times Ahead For PMB Technology Berhad (KLSE:PMBTECH)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at PMB Technology Berhad (KLSE:PMBTECH) and its ROCE trend, we weren't exactly thrilled.

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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. Analysts use this formula to calculate it for PMB Technology Berhad:

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

0.026 = RM44m ÷ (RM2.4b - RM760m) (Based on the trailing twelve months to December 2024).

Therefore, PMB Technology Berhad has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Metals and Mining industry average of 5.4%.

See our latest analysis for PMB Technology Berhad

In the above chart we have measured PMB Technology Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for PMB Technology Berhad .

How Are Returns Trending?

The trend of ROCE doesn't look fantastic because it's fallen from 3.6% five years ago, while the business's capital employed increased by 108%. Usually this isn't ideal, but given PMB Technology Berhad conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with PMB Technology Berhad's earnings and if they change as a result from the capital raise.

The Key Takeaway

In summary, PMB Technology Berhad is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Yet to long term shareholders the stock has gifted them an incredible 152% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a final note, we found 3 warning signs for PMB Technology Berhad (1 is a bit unpleasant) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.