Genetec Technology Berhad's (KLSE:GENETEC) Returns On Capital Are Heading Higher

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So on that note, Genetec Technology Berhad (KLSE:GENETEC) looks quite promising in regards to its trends of return on capital.

Understanding 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 Genetec Technology Berhad, this is the formula:

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

0.057 = RM6.7m ÷ (RM175m - RM57m) (Based on the trailing twelve months to June 2021).

Therefore, Genetec Technology Berhad has an ROCE of 5.7%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 15%.

View our latest analysis for Genetec Technology Berhad

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

What Can We Tell From Genetec Technology Berhad's ROCE Trend?

Genetec Technology Berhad has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 5.7% on its capital. And unsurprisingly, like most companies trying to break into the black, Genetec Technology Berhad is utilizing 45% more capital than it was five years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Our Take On Genetec Technology Berhad's ROCE

In summary, it's great to see that Genetec Technology Berhad has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 2,116% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

One more thing: We've identified 3 warning signs with Genetec Technology Berhad (at least 1 which is significant) , and understanding them would certainly be useful.

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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