Cuscapi Berhad (KLSE:CUSCAPI) Knows How To Allocate Capital Effectively

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Cuscapi Berhad's (KLSE:CUSCAPI) returns on capital, so let's have a look.

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Understanding 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. The formula for this calculation on Cuscapi Berhad is:

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

0.27 = RM15m ÷ (RM72m - RM17m) (Based on the trailing twelve months to December 2024).

So, Cuscapi Berhad has an ROCE of 27%. In absolute terms that's a great return and it's even better than the Software industry average of 16%.

Check out our latest analysis for Cuscapi Berhad

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Cuscapi Berhad .

What Can We Tell From Cuscapi Berhad's ROCE Trend?

Like most people, we're pleased that Cuscapi Berhad is now generating some pretax earnings. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 27% on their capital employed. In regards to capital employed, Cuscapi Berhad is using 39% 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

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. Considering the stock has delivered 35% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

If you'd like to know about the risks facing Cuscapi Berhad, we've discovered 2 warning signs that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.