Returns On Capital Are Showing Encouraging Signs At Privasia Technology Berhad (KLSE:PRIVA)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Speaking of which, we noticed some great changes in Privasia Technology Berhad's (KLSE:PRIVA) returns on capital, so let's have a look.

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What Is Return On Capital Employed (ROCE)?

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 Privasia Technology Berhad, this is the formula:

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

0.0097 = RM921k ÷ (RM186m - RM91m) (Based on the trailing twelve months to March 2025).

Thus, Privasia Technology Berhad has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the IT industry average of 12%.

Check out our latest analysis for Privasia Technology 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 Privasia Technology Berhad's past further, check out this free graph covering Privasia Technology Berhad's past earnings, revenue and cash flow.

What Can We Tell From Privasia Technology Berhad's ROCE Trend?

Privasia Technology Berhad has recently broken into profitability so their prior investments seem to be paying off. The company was generating losses five years ago, but now it's earning 1.0% which is a sight for sore eyes. In addition to that, Privasia Technology Berhad is employing 31% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 49% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. 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

To the delight of most shareholders, Privasia Technology Berhad has now broken into profitability.

One more thing, we've spotted 3 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.

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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.