Will the Promising Trends At Globaltec Formation Berhad (KLSE:GLOTEC) Continue?

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Globaltec Formation Berhad (KLSE:GLOTEC) looks quite promising in regards to its trends of return on capital.

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. The formula for this calculation on Globaltec Formation Berhad is:

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

0.086 = RM26m ÷ (RM378m - RM72m) (Based on the trailing twelve months to September 2020).

Thus, Globaltec Formation Berhad has an ROCE of 8.6%. Ultimately, that's a low return and it under-performs the Electronic industry average of 12%.

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 want to delve into the historical earnings, revenue and cash flow of Globaltec Formation Berhad, check out these free graphs here.

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

We're delighted to see that Globaltec Formation Berhad is reaping rewards from its investments and has now broken into profitability. The company was generating losses five years ago, but now it's turned around, earning 8.6% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 31% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. Globaltec Formation Berhad could be selling under-performing assets since the ROCE is improving.

What We Can Learn From Globaltec Formation Berhad's ROCE

In the end, Globaltec Formation Berhad has proven it's capital allocation skills are good with those higher returns from less amount of capital. And since the stock has fallen 60% 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.

On a separate note, we've found 1 warning sign for Globaltec Formation Berhad you'll probably want to know about.

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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