There Are Reasons To Feel Uneasy About HeiTech Padu Berhad's (KLSE:HTPADU) Returns On Capital

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. However, after briefly looking over the numbers, we don't think HeiTech Padu Berhad (KLSE:HTPADU) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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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 HeiTech Padu Berhad:

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

0.18 = RM41m ÷ (RM640m - RM414m) (Based on the trailing twelve months to March 2025).

So, HeiTech Padu Berhad has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the IT industry average of 12% it's much better.

See our latest analysis for HeiTech Padu Berhad

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

How Are Returns Trending?

Unfortunately, the trend isn't great with ROCE falling from 48% five years ago, while capital employed has grown 79%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. HeiTech Padu Berhad probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

On a side note, HeiTech Padu Berhad's current liabilities are still rather high at 65% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On HeiTech Padu Berhad's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for HeiTech Padu Berhad. And long term investors must be optimistic going forward because the stock has returned a huge 111% to shareholders in the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

On a final note, we found 3 warning signs for HeiTech Padu Berhad (2 shouldn't be ignored) you should be aware of.

While HeiTech Padu 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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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.