Digistar Corporation Berhad (KLSE:DIGISTA) Shareholders Will Want The ROCE Trajectory To Continue

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. With that in mind, we've noticed some promising trends at Digistar Corporation Berhad (KLSE:DIGISTA) so let's look a bit deeper.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Digistar Corporation Berhad:

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

0.037 = RM8.7m ÷ (RM292m - RM58m) (Based on the trailing twelve months to September 2024).

Therefore, Digistar Corporation Berhad has an ROCE of 3.7%. Ultimately, that's a low return and it under-performs the IT industry average of 12%.

See our latest analysis for Digistar Corporation 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're interested in investigating Digistar Corporation Berhad's past further, check out this free graph covering Digistar Corporation Berhad's past earnings, revenue and cash flow.

What Does the ROCE Trend For Digistar Corporation Berhad Tell Us?

Like most people, we're pleased that Digistar Corporation Berhad is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 3.7% which is no doubt a relief for some early shareholders. In regards to capital employed, Digistar Corporation Berhad is using 27% 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. Digistar Corporation Berhad could be selling under-performing assets since the ROCE is improving.

Our Take On Digistar Corporation Berhad's ROCE

From what we've seen above, Digistar Corporation Berhad has managed to increase it's returns on capital all the while reducing it's capital base. And since the stock has fallen 57% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to know some of the risks facing Digistar Corporation Berhad we've found 4 warning signs (3 are a bit concerning!) that you should be aware of before investing here.

While Digistar Corporation Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.