Here's What's Concerning About Citra Nusa Holdings Berhad's (KLSE:CNH) Returns On Capital

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. On that note, looking into Citra Nusa Holdings Berhad (KLSE:CNH), we weren't too upbeat about how things were going.

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. Analysts use this formula to calculate it for Citra Nusa Holdings Berhad:

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

0.0002 = RM14k ÷ (RM83m - RM12m) (Based on the trailing twelve months to March 2024).

Therefore, Citra Nusa Holdings Berhad has an ROCE of 0.02%. In absolute terms, that's a low return and it also under-performs the Retail Distributors industry average of 5.3%.

Check out our latest analysis for Citra Nusa Holdings Berhad

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

The Trend Of ROCE

There is reason to be cautious about Citra Nusa Holdings Berhad, given the returns are trending downwards. Unfortunately the returns on capital have diminished from the 1.7% that they were earning five years ago. 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. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Citra Nusa Holdings Berhad becoming one if things continue as they have.

Our Take On Citra Nusa Holdings Berhad's ROCE

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 14% 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.

Citra Nusa Holdings Berhad does have some risks, we noticed 3 warning signs (and 2 which make us uncomfortable) 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.

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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.