JF Technology Berhad (KLSE:JFTECH) Is Experiencing Growth In Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at JF Technology Berhad (KLSE:JFTECH) so let's look a bit deeper.

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. Analysts use this formula to calculate it for JF Technology Berhad:

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

0.11 = RM14m ÷ (RM124m - RM1.9m) (Based on the trailing twelve months to March 2021).

So, JF Technology Berhad has an ROCE of 11%. In absolute terms, that's a pretty standard return but compared to the Semiconductor industry average it falls behind.

See our latest analysis for JF Technology Berhad

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

How Are Returns Trending?

We like the trends that we're seeing from JF Technology Berhad. The data shows that returns on capital have increased substantially over the last five years to 11%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 306%. So we're very much inspired by what we're seeing at JF Technology Berhad thanks to its ability to profitably reinvest capital.

What We Can Learn From JF Technology Berhad's ROCE

To sum it up, JF 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. In light of that, we think it's worth looking further into this stock because if JF Technology Berhad can keep these trends up, it could have a bright future ahead.

Like most companies, JF Technology Berhad does come with some risks, and we've found 1 warning sign that you should be aware of.

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. 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.
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