Returns On Capital At NationGate Holdings Berhad (KLSE:NATGATE) Have Hit The Brakes

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of NationGate Holdings Berhad (KLSE:NATGATE) looks decent, right now, so lets see what the trend of returns can tell us.

What Is 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. Analysts use this formula to calculate it for NationGate Holdings Berhad:

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

0.18 = RM174m ÷ (RM3.0b - RM2.0b) (Based on the trailing twelve months to September 2024).

So, NationGate Holdings Berhad has an ROCE of 18%. On its own, that's a standard return, however it's much better than the 11% generated by the Electronic industry.

Check out our latest analysis for NationGate Holdings Berhad

Above you can see how the current ROCE for NationGate Holdings Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for NationGate Holdings Berhad .

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 18% for the last four years, and the capital employed within the business has risen 449% in that time. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a side note, NationGate Holdings Berhad's current liabilities are still rather high at 67% of total assets. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line

To sum it up, NationGate Holdings Berhad has simply been reinvesting capital steadily, at those decent rates of return. And the stock has followed suit returning a meaningful 45% to shareholders over the last year. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

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

While NationGate Holdings 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.