Amlex Holdings Berhad (KLSE:AMLEX) Is Looking To Continue Growing Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. With that in mind, we've noticed some promising trends at Amlex Holdings Berhad (KLSE:AMLEX) so let's look a bit deeper.

Understanding 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 Amlex Holdings Berhad, this is the formula:

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

0.011 = RM675k ÷ (RM73m - RM13m) (Based on the trailing twelve months to September 2024).

Therefore, Amlex Holdings Berhad has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Electronic industry average of 12%.

See our latest analysis for Amlex Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Amlex Holdings Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Amlex Holdings Berhad.

What Can We Tell From Amlex Holdings Berhad's ROCE Trend?

The fact that Amlex Holdings Berhad is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 1.1% on its capital. In addition to that, Amlex Holdings Berhad is employing 57% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

On a related note, the company's ratio of current liabilities to total assets has decreased to 17%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

The Bottom Line On Amlex Holdings Berhad's ROCE

Overall, Amlex Holdings Berhad gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And since the stock has fallen 33% over the last three years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for Amlex Holdings Berhad (of which 1 is a bit concerning!) that you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.