Returns At Globaltec Formation Berhad (KLSE:GLOTEC) 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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So on that note, Globaltec Formation Berhad (KLSE:GLOTEC) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its 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)

0.093 = RM29m ÷ (RM387m - RM77m) (Based on the trailing twelve months to March 2021).

Therefore, Globaltec Formation Berhad has an ROCE of 9.3%. On its own, that's a low figure but it's around the 10% average generated by the Electronic industry.

Check out 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're interested in investigating Globaltec Formation Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Globaltec Formation Berhad's ROCE Trend?

Like most people, we're pleased that Globaltec Formation Berhad is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 9.3% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 29%. Globaltec Formation Berhad could be selling under-performing assets since the ROCE is improving.

The Bottom Line On Globaltec Formation Berhad's ROCE

In summary, it's great to see that Globaltec Formation Berhad has been able to turn things around and earn higher returns on lower amounts of capital. And since the stock has fallen 33% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching Globaltec Formation Berhad, you might be interested to know about the 2 warning signs that our analysis has discovered.

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. 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.
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