Here's What's Concerning About K-One Technology Berhad's (KLSE:K1) Returns On Capital

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. Basically the company is earning less on its investments and it is also reducing its total assets. In light of that, from a first glance at K-One Technology Berhad (KLSE:K1), we've spotted some signs that it could be struggling, so let's investigate.

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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 K-One Technology Berhad, this is the formula:

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

0.0089 = RM1.1m ÷ (RM201m - RM83m) (Based on the trailing twelve months to June 2025).

So, K-One Technology Berhad has an ROCE of 0.9%. Ultimately, that's a low return and it under-performs the Electronic industry average of 12%.

See our latest analysis for K-One Technology Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for K-One Technology Berhad's ROCE against it's prior returns. If you'd like to look at how K-One Technology Berhad has performed in the past in other metrics, you can view this free graph of K-One Technology Berhad's past earnings, revenue and cash flow.

The Trend Of ROCE

There is reason to be cautious about K-One Technology Berhad, given the returns are trending downwards. To be more specific, the ROCE was 1.2% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect K-One Technology Berhad to turn into a multi-bagger.

On a side note, K-One Technology Berhad's current liabilities have increased over the last five years to 41% of total assets, effectively distorting the ROCE to some degree. Without this increase, it's likely that ROCE would be even lower than 0.9%. And with current liabilities at these levels, suppliers or short-term creditors are effectively funding a large part of the business, which can introduce some risks.

Our Take On K-One Technology Berhad's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. It should come as no surprise then that the stock has fallen 66% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a separate note, we've found 1 warning sign for K-One Technology Berhad you'll probably want to know about.

While K-One Technology Berhad isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.