Investors Will Want Digistar Corporation Berhad's (KLSE:DIGISTA) Growth In ROCE To Persist

There are a few key trends to look for if we want to identify the next 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at Digistar Corporation Berhad (KLSE:DIGISTA) and its trend of ROCE, we really liked what we saw.

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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. To calculate this metric for Digistar Corporation Berhad, this is the formula:

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

0.031 = RM7.6m ÷ (RM306m - RM59m) (Based on the trailing twelve months to March 2025).

Therefore, Digistar Corporation Berhad has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the IT industry average of 12%.

Check out 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Digistar Corporation Berhad.

What Can We Tell From Digistar Corporation Berhad's ROCE Trend?

We're delighted to see that Digistar Corporation Berhad is reaping rewards from its investments and has now broken into profitability. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 3.1% on their capital employed. In regards to capital employed, Digistar Corporation Berhad is using 24% 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.

The Bottom Line

In summary, it's great to see that Digistar Corporation Berhad has been able to turn things around and earn higher returns on lower amounts of capital. Although the company may be facing some issues elsewhere since the stock has plunged 84% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

One more thing, we've spotted 4 warning signs facing Digistar Corporation Berhad that you might find interesting.

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.