Be Wary Of Mi Technovation Berhad (KLSE:MI) And Its Returns On Capital

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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. However, after briefly looking over the numbers, we don't think Mi Technovation Berhad (KLSE:MI) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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

What Is 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 Mi Technovation Berhad, this is the formula:

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

0.07 = RM76m ÷ (RM1.2b - RM106m) (Based on the trailing twelve months to December 2024).

Thus, Mi Technovation Berhad has an ROCE of 7.0%. On its own that's a low return, but compared to the average of 5.5% generated by the Semiconductor industry, it's much better.

Check out our latest analysis for Mi Technovation Berhad

In the above chart we have measured Mi Technovation Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Mi Technovation Berhad .

How Are Returns Trending?

In terms of Mi Technovation Berhad's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 16%, but since then they've fallen to 7.0%. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. If these investments prove successful, this can bode very well for long term stock performance.

Our Take On Mi Technovation Berhad's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that Mi Technovation Berhad is reinvesting for growth and has higher sales as a result. These trends don't appear to have influenced returns though, because the total return from the stock has been mostly flat over the last five years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

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

While Mi Technovation 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.