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Cuscapi Berhad (KLSE:CUSCAPI) Is Looking To Continue Growing Its Returns On Capital
What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Speaking of which, we noticed some great changes in Cuscapi Berhad's (KLSE:CUSCAPI) returns on capital, so let's have a look.
Return On Capital Employed (ROCE): What Is It?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the 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)
0.029 = RM1.6m ÷ (RM64m - RM11m) (Based on the trailing twelve months to December 2023).
So, Cuscapi Berhad has an ROCE of 2.9%. Ultimately, that's a low return and it under-performs the Software industry average of 11%.
See 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Cuscapi Berhad.
The Trend Of ROCE
We're delighted to see that Cuscapi Berhad is reaping rewards from its investments and has now broken into profitability. While the business is profitable now, it used to be incurring losses on invested capital five years ago. In regards to capital employed, Cuscapi Berhad is using 44% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. Cuscapi Berhad could be selling under-performing assets since the ROCE is improving.
The Bottom Line
From what we've seen above, Cuscapi Berhad has managed to increase it's returns on capital all the while reducing it's capital base. Since the stock has only returned 23% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.
Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Cuscapi Berhad (of which 1 makes us a bit uncomfortable!) that you should know about.
While Cuscapi 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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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
About KLSE:CUSCAPI
Cuscapi Berhad
Provides point-of-sale systems in Malaysia and Southeast Asia.
Flawless balance sheet and fair value.
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