The Returns At Scope Industries Berhad (KLSE:SCOPE) Aren't Growing

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. Having said that, from a first glance at Scope Industries Berhad (KLSE:SCOPE) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Scope Industries Berhad, this is the formula:

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

0.041 = RM8.7m ÷ (RM219m - RM6.0m) (Based on the trailing twelve months to March 2022).

So, Scope Industries Berhad has an ROCE of 4.1%. Ultimately, that's a low return and it under-performs the Electronic industry average of 13%.

Check out our latest analysis for Scope Industries Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Scope Industries Berhad's ROCE against it's prior returns. If you're interested in investigating Scope Industries Berhad's past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Scope Industries Berhad's ROCE Trend?

There are better returns on capital out there than what we're seeing at Scope Industries Berhad. The company has consistently earned 4.1% for the last five years, and the capital employed within the business has risen 60% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

In conclusion, Scope Industries Berhad has been investing more capital into the business, but returns on that capital haven't increased. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

If you'd like to know about the risks facing Scope Industries Berhad, we've discovered 2 warning signs that you should be aware of.

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.