Investors Could Be Concerned With Scientex Berhad's (KLSE:SCIENTX) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Scientex Berhad (KLSE:SCIENTX) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

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 Scientex Berhad, this is the formula:

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

0.13 = RM742m ÷ (RM8.1b - RM2.5b) (Based on the trailing twelve months to July 2025).

Thus, Scientex Berhad has an ROCE of 13%. On its own, that's a standard return, however it's much better than the 9.1% generated by the Chemicals industry.

See our latest analysis for Scientex Berhad

In the above chart we have measured Scientex 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 Scientex Berhad .

What The Trend Of ROCE Can Tell Us

In terms of Scientex Berhad's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 13% from 18% five years ago. However it looks like Scientex Berhad might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

The Key Takeaway

Bringing it all together, while we're somewhat encouraged by Scientex Berhad's reinvestment in its own business, we're aware that returns are shrinking. And with the stock having returned a mere 17% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

Scientex Berhad does have some risks though, and we've spotted 2 warning signs for Scientex Berhad that you might be interested in.

While Scientex 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.