Techbond Group Berhad (KLSE:TECHBND) Will Be Hoping To Turn Its Returns On Capital Around

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 Techbond Group Berhad (KLSE:TECHBND) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. The formula for this calculation on Techbond Group Berhad is:

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

0.079 = RM12m ÷ (RM159m - RM8.6m) (Based on the trailing twelve months to September 2021).

Thus, Techbond Group Berhad has an ROCE of 7.9%. In absolute terms, that's a low return but it's around the Chemicals industry average of 8.6%.

See our latest analysis for Techbond Group Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Techbond Group Berhad's ROCE against it's prior returns. If you're interested in investigating Techbond Group Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Techbond Group Berhad's ROCE Trend?

In terms of Techbond Group Berhad's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 30% over the last five years. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.

On a side note, Techbond Group Berhad has done well to pay down its current liabilities to 5.4% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.

What We Can Learn From Techbond Group Berhad's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Techbond Group Berhad. These growth trends haven't led to growth returns though, since the stock has fallen 27% over the last year. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

Techbond Group Berhad does have some risks, we noticed 4 warning signs (and 1 which can't be ignored) we think you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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.

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