Citra Nusa Holdings Berhad (KLSE:CNH) Could Be At Risk Of Shrinking As A Company

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. In light of that, from a first glance at Citra Nusa Holdings Berhad (KLSE:CNH), we've spotted some signs that it could be struggling, so let's investigate.

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

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. To calculate this metric for Citra Nusa Holdings Berhad, this is the formula:

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

0.0065 = RM456k ÷ (RM81m - RM10m) (Based on the trailing twelve months to June 2023).

Thus, Citra Nusa Holdings Berhad has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Retail Distributors industry average of 6.9%.

See our latest analysis for Citra Nusa Holdings 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 Citra Nusa Holdings Berhad, check out these free graphs here.

What Can We Tell From Citra Nusa Holdings Berhad's ROCE Trend?

There is reason to be cautious about Citra Nusa Holdings Berhad, given the returns are trending downwards. To be more specific, the ROCE was 4.8% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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 Citra Nusa Holdings Berhad to turn into a multi-bagger.

The Bottom Line On Citra Nusa Holdings Berhad's ROCE

In summary, it's unfortunate that Citra Nusa Holdings Berhad is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 24% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a final note, we found 2 warning signs for Citra Nusa Holdings Berhad (1 is concerning) you should be aware of.

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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.