Slowing Rates Of Return At Nova MSC Berhad (KLSE:NOVAMSC) Leave Little Room For Excitement

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, 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. Although, when we looked at Nova MSC Berhad (KLSE:NOVAMSC), it didn't seem to tick all of these boxes.

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Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Nova MSC Berhad, this is the formula:

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

0.065 = RM3.6m ÷ (RM70m - RM14m) (Based on the trailing twelve months to June 2025).

Thus, Nova MSC Berhad has an ROCE of 6.5%. Ultimately, that's a low return and it under-performs the Software industry average of 13%.

See our latest analysis for Nova MSC 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 Nova MSC Berhad.

What Does the ROCE Trend For Nova MSC Berhad Tell Us?

Over the past five years, Nova MSC Berhad's ROCE has remained relatively flat while the business is using 21% less capital than before. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. In addition to that, since the ROCE doesn't scream "quality" at 6.5%, it's hard to get excited about these developments.

The Bottom Line On Nova MSC Berhad's ROCE

Overall, we're not ecstatic to see Nova MSC Berhad reducing the amount of capital it employs in the business. And in the last five years, the stock has given away 53% so the market doesn't look too hopeful on these trends strengthening any time soon. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

One more thing: We've identified 3 warning signs with Nova MSC Berhad (at least 2 which make us uncomfortable) , and understanding them would certainly be useful.

While Nova MSC 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.