Cuscapi Berhad (KLSE:CUSCAPI) Is Doing The Right Things To Multiply Its Share Price

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Cuscapi Berhad (KLSE:CUSCAPI) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Cuscapi Berhad is:

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

0.036 = RM2.0m ÷ (RM68m - RM11m) (Based on the trailing twelve months to December 2023).

Thus, Cuscapi Berhad has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Software industry average of 9.0%.

Check out our latest analysis for Cuscapi Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Cuscapi Berhad's ROCE against it's prior returns. If you'd like to look at how Cuscapi Berhad has performed in the past in other metrics, you can view this free graph of Cuscapi Berhad's past earnings, revenue and cash flow.

The Trend Of ROCE

Like most people, we're pleased that Cuscapi Berhad is now generating some pretax earnings. While the business is profitable now, it used to be incurring losses on invested capital five years ago. Additionally, the business is utilizing 41% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. Cuscapi Berhad could be selling under-performing assets since the ROCE is improving.

The Bottom Line

In summary, it's great to see that Cuscapi Berhad has been able to turn things around and earn higher returns on lower amounts of capital. Since the stock has returned a solid 61% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we've found 3 warning signs for Cuscapi Berhad that we think you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.