Asia Brands Berhad (KLSE:ASIABRN) Has Some Difficulty Using Its Capital Effectively

When researching a stock for investment, what can tell us that the company is in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. Having said that, after a brief look, Asia Brands Berhad (KLSE:ASIABRN) we aren't filled with optimism, but let's investigate further.

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What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Asia Brands Berhad, this is the formula:

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

0.024 = RM6.0m ÷ (RM290m - RM42m) (Based on the trailing twelve months to June 2025).

Therefore, Asia Brands Berhad has an ROCE of 2.4%. Ultimately, that's a low return and it under-performs the Retail Distributors industry average of 3.3%.

See our latest analysis for Asia Brands 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're interested in investigating Asia Brands Berhad's past further, check out this free graph covering Asia Brands Berhad's past earnings, revenue and cash flow.

So How Is Asia Brands Berhad's ROCE Trending?

There is reason to be cautious about Asia Brands Berhad, given the returns are trending downwards. To be more specific, the ROCE was 5.2% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Asia Brands Berhad to turn into a multi-bagger.

In Conclusion...

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Investors haven't taken kindly to these developments, since the stock has declined 16% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

One final note, you should learn about the 4 warning signs we've spotted with Asia Brands Berhad (including 1 which doesn't sit too well with us) .

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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.