Genetec Technology Berhad (KLSE:GENETEC) Shareholders Will Want The ROCE Trajectory To Continue

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Genetec Technology Berhad (KLSE:GENETEC) so let's look a bit deeper.

Our free stock report includes 1 warning sign investors should be aware of before investing in Genetec Technology Berhad. Read for free now.

Understanding 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. To calculate this metric for Genetec Technology Berhad, this is the formula:

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

0.14 = RM73m ÷ (RM568m - RM62m) (Based on the trailing twelve months to June 2024).

Therefore, Genetec Technology Berhad has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Semiconductor industry average of 6.2% it's much better.

View our latest analysis for Genetec Technology Berhad

Above you can see how the current ROCE for Genetec Technology Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Genetec Technology Berhad for free.

So How Is Genetec Technology Berhad's ROCE Trending?

Genetec Technology Berhad is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 440% more capital is being employed now too. So we're very much inspired by what we're seeing at Genetec Technology Berhad thanks to its ability to profitably reinvest capital.

What We Can Learn From Genetec Technology Berhad's ROCE

To sum it up, Genetec Technology Berhad has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing to note, we've identified 1 warning sign with Genetec Technology Berhad and understanding it should be part of your investment process.

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.