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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 Globaltec Formation Berhad (KLSE:GLOTEC) so let's look a bit deeper.

Understanding 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 Globaltec Formation Berhad is:

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

0.074 = RM25m ÷ (RM417m - RM80m) (Based on the trailing twelve months to September 2022).

So, Globaltec Formation Berhad has an ROCE of 7.4%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 16%.

See 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.

How Are Returns Trending?

Globaltec Formation Berhad has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 7.4% 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. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

The Key Takeaway

To sum it up, Globaltec Formation Berhad is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 50% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

Globaltec Formation Berhad does have some risks though, and we've spotted 2 warning signs for Globaltec Formation Berhad that you might be interested in.

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.