Returns At Privasia Technology Berhad (KLSE:PRIVA) Are On The Way Up

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, Privasia Technology Berhad (KLSE:PRIVA) looks quite promising in regards to its trends of return on capital.

What Is 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. The formula for this calculation on Privasia Technology Berhad is:

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

0.061 = RM6.2m ÷ (RM174m - RM72m) (Based on the trailing twelve months to September 2024).

Therefore, Privasia Technology Berhad has an ROCE of 6.1%. Ultimately, that's a low return and it under-performs the IT industry average of 9.5%.

See our latest analysis for Privasia Technology Berhad

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

The Trend Of ROCE

Privasia Technology Berhad has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 6.1% on its capital. And unsurprisingly, like most companies trying to break into the black, Privasia Technology Berhad is utilizing 37% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 41% of its operations, which isn't ideal. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

The Key Takeaway

Long story short, we're delighted to see that Privasia Technology Berhad's reinvestment activities have paid off and the company is now profitable. Since the stock has returned a staggering 144% to shareholders over the last five years, it looks like investors are recognizing these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

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

While Privasia Technology 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.