GDEX Berhad (KLSE:GDEX) Will Be Hoping To Turn Its Returns On Capital Around

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. Having said that, after a brief look, GDEX Berhad (KLSE:GDEX) we aren't filled with optimism, but let's investigate further.

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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. To calculate this metric for GDEX Berhad, this is the formula:

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

0.011 = RM5.8m ÷ (RM603m - RM95m) (Based on the trailing twelve months to December 2024).

Therefore, GDEX Berhad has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Logistics industry average of 6.3%.

Check out our latest analysis for GDEX Berhad

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

How Are Returns Trending?

In terms of GDEX Berhad's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 5.2% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect GDEX Berhad to turn into a multi-bagger.

Our Take On GDEX Berhad's ROCE

In summary, it's unfortunate that GDEX Berhad is generating lower returns from the same amount of capital. It should come as no surprise then that the stock has fallen 20% 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.

One more thing, we've spotted 1 warning sign facing GDEX Berhad that you might find interesting.

While GDEX 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.