Globetronics Technology Bhd's (KLSE:GTRONIC) Returns On Capital Not Reflecting Well On The Business

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base 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. On that note, looking into Globetronics Technology Bhd (KLSE:GTRONIC), we weren't too upbeat about how things were going.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Globetronics Technology Bhd:

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

0.016 = RM5.1m ÷ (RM337m - RM28m) (Based on the trailing twelve months to March 2025).

Thus, Globetronics Technology Bhd has an ROCE of 1.6%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 7.0%.

See our latest analysis for Globetronics Technology Bhd

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

The Trend Of ROCE

In terms of Globetronics Technology Bhd's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 17%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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 Globetronics Technology Bhd becoming one if things continue as they have.

The Key Takeaway

In summary, it's unfortunate that Globetronics Technology Bhd is generating lower returns from the same amount of capital. This could explain why the stock has sunk a total of 80% in the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One more thing: We've identified 4 warning signs with Globetronics Technology Bhd (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

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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.