The Trends At WCE Holdings Berhad (KLSE:WCEHB) That You Should Know About

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at WCE Holdings Berhad (KLSE:WCEHB) and its ROCE trend, we weren't exactly thrilled.

What is 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. The formula for this calculation on WCE Holdings Berhad is:

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

0.00085 = RM4.5m ÷ (RM5.7b - RM339m) (Based on the trailing twelve months to September 2020).

Therefore, WCE Holdings Berhad has an ROCE of 0.08%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 7.0%.

View our latest analysis for WCE Holdings Berhad

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

What Does the ROCE Trend For WCE Holdings Berhad Tell Us?

Unfortunately, the trend isn't great with ROCE falling from 1.8% five years ago, while capital employed has grown 227%. However, some of the increase in capital employed could be attributed to the recent capital raising that's been completed prior to their latest reporting period, so keep that in mind when looking at the ROCE decrease. It's unlikely that all of the funds raised have been put to work yet, so as a consequence WCE Holdings Berhad might not have received a full period of earnings contribution from it.

Our Take On WCE Holdings Berhad's ROCE

From the above analysis, we find it rather worrisome that returns on capital and sales for WCE Holdings Berhad have fallen, meanwhile the business is employing more capital than it was five years ago. It should come as no surprise then that the stock has fallen 57% over the last five years, so it looks like investors are recognizing these changes. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

One final note, you should learn about the 4 warning signs we've spotted with WCE Holdings Berhad (including 2 which are a bit concerning) .

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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This article by Simply Wall St is general in nature. 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.
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