The Returns On Capital At JF Technology Berhad (KLSE:JFTECH) Don't Inspire Confidence

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. However, after briefly looking over the numbers, we don't think JF Technology Berhad (KLSE:JFTECH) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

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. The formula for this calculation on JF Technology Berhad is:

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

0.013 = RM1.8m ÷ (RM147m - RM7.4m) (Based on the trailing twelve months to December 2024).

Therefore, JF Technology Berhad has an ROCE of 1.3%. In absolute terms, that's a low return and it also under-performs the Semiconductor industry average of 5.5%.

Check out 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of JF Technology Berhad .

How Are Returns Trending?

We weren't thrilled with the trend because JF Technology Berhad's ROCE has reduced by 81% over the last five years, while the business employed 285% more capital. That being said, JF Technology Berhad raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. JF Technology Berhad probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

The Key Takeaway

To conclude, we've found that JF Technology Berhad is reinvesting in the business, but returns have been falling. Unsurprisingly, the stock has only gained 16% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for JF Technology Berhad (of which 1 is a bit unpleasant!) that you should know about.

While JF Technology Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.