Returns On Capital Are Showing Encouraging Signs At Catcha Digital Berhad (KLSE:CATCHA)

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, 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. With that in mind, we've noticed some promising trends at Catcha Digital Berhad (KLSE:CATCHA) so let's look a bit deeper.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Catcha Digital Berhad:

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

0.044 = RM2.5m ÷ (RM65m - RM8.9m) (Based on the trailing twelve months to September 2023).

So, Catcha Digital Berhad has an ROCE of 4.4%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 14%.

See our latest analysis for Catcha Digital 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 want to delve into the historical earnings, revenue and cash flow of Catcha Digital Berhad, check out these free graphs here.

What Can We Tell From Catcha Digital Berhad's ROCE Trend?

Catcha Digital Berhad has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 4.4% which is a sight for sore eyes. In addition to that, Catcha Digital Berhad is employing 792% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

Our Take On Catcha Digital Berhad's ROCE

In summary, it's great to see that Catcha Digital Berhad has managed to break into profitability and is continuing to reinvest in its business. And with a respectable 86% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

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

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.