Globaltec Formation Berhad (KLSE:GLOTEC) Is Looking To Continue Growing Its Returns On Capital

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Globaltec Formation Berhad's (KLSE:GLOTEC) returns on capital, so let's have a look.

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

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Globaltec Formation Berhad, this is the formula:

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

0.057 = RM19m ÷ (RM409m - RM74m) (Based on the trailing twelve months to March 2023).

Therefore, Globaltec Formation Berhad has an ROCE of 5.7%. Ultimately, that's a low return and it under-performs the Electronic industry average of 17%.

View our latest analysis for Globaltec Formation Berhad

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

SWOT Analysis for Globaltec Formation Berhad

What The Trend Of ROCE Can Tell Us

We're delighted to see that Globaltec Formation Berhad is reaping rewards from its investments and has now broken into profitability. The company now earns 5.7% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

The Bottom Line

To sum it up, Globaltec Formation Berhad is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 52% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Like most companies, Globaltec Formation Berhad does come with some risks, and we've found 3 warning signs that you should be aware of.

While Globaltec Formation 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.