Mi Technovation Berhad (KLSE:MI) Is Reinvesting At Lower Rates Of Return

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. 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.

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. Analysts use this formula to calculate it for Mi Technovation Berhad:

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

0.067 = RM74m ÷ (RM1.2b - RM93m) (Based on the trailing twelve months to March 2023).

Therefore, Mi Technovation Berhad has an ROCE of 6.7%. Ultimately, that's a low return and it under-performs the Semiconductor industry average of 14%.

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, you can check out the forecasts from the analysts covering Mi Technovation Berhad here for free.

What Does the ROCE Trend For Mi Technovation Berhad Tell Us?

When we looked at the ROCE trend at Mi Technovation Berhad, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 6.7% from 32% five years ago. However it looks like Mi Technovation Berhad might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Mi Technovation Berhad's ROCE

To conclude, we've found that Mi Technovation Berhad is reinvesting in the business, but returns have been falling. Since the stock has gained an impressive 55% over the last five years, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a separate note, we've found 1 warning sign for Mi Technovation Berhad you'll probably want to know about.

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.