Returns On Capital Signal Difficult Times Ahead For Willas-Array Electronics (Holdings) (SGX:BDR)

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. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. So after glancing at the trends within Willas-Array Electronics (Holdings) (SGX:BDR), we weren't too hopeful.

Advertisement

Return On Capital Employed (ROCE): What Is It?

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 Willas-Array Electronics (Holdings), this is the formula:

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

0.093 = HK$67m ÷ (HK$2.0b - HK$1.3b) (Based on the trailing twelve months to March 2023).

So, Willas-Array Electronics (Holdings) has an ROCE of 9.3%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.3%.

View our latest analysis for Willas-Array Electronics (Holdings)

roce
SGX:BDR Return on Capital Employed September 19th 2023

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

What Does the ROCE Trend For Willas-Array Electronics (Holdings) Tell Us?

In terms of Willas-Array Electronics (Holdings)'s historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 17% that they were earning five years ago. Meanwhile, capital employed in the business has stayed roughly the flat over the period. 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 Willas-Array Electronics (Holdings) to turn into a multi-bagger.

On a separate but related note, it's important to know that Willas-Array Electronics (Holdings) has a current liabilities to total assets ratio of 64%, which we'd consider pretty high. 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.

In Conclusion...

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Long term shareholders who've owned the stock over the last five years have experienced a 26% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

One final note, you should learn about the 6 warning signs we've spotted with Willas-Array Electronics (Holdings) (including 2 which can't be ignored) .

While Willas-Array Electronics (Holdings) isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

Valuation is complex, but we're here to simplify it.

Discover if Willas-Array Electronics (Holdings) might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.

Access Free Analysis

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

About SGX:BDR

Willas-Array Electronics (Holdings)

An investment holding company, distributes and trades in electronic components for industrial, audio and video, telecommunication, home appliances, lighting, electronic manufacturing, and automotive markets.

Good value with acceptable track record.

Advertisement

Weekly Picks

CE
Ceazar
SPAI logo
Ceazar on Sparc AI ·

When GPS fails: this small cap is fixing a $54B drone problem

Fair Value:CA$5.2552.0% undervalued
138 users have followed this narrative
0 users have commented on this narrative
26 users have liked this narrative
HA
HarishPK
DOX logo
HarishPK on Amdocs ·

Why Amdocs is a high conviction Buy for me?

Fair Value:US$82.0332.5% undervalued
11 users have followed this narrative
1 users have commented on this narrative
3 users have liked this narrative
IV
SBMO logo
Ivoed on SBM Offshore ·

Why SBM Offshore’s €30 Share Price May Be Too Harsh On Its Backlog

Fair Value:€44.528.1% undervalued
6 users have followed this narrative
0 users have commented on this narrative
1 users have liked this narrative
CL
Clive_Thompson
6831 logo
Clive_Thompson on Green Tea Group ·

One of China's Fastest-Growing Restaurant Chains Trades on Just 7x Earnings and an 8% Dividend

Fair Value:HK$8.725.6% undervalued
8 users have followed this narrative
3 users have commented on this narrative
11 users have liked this narrative

Updated Narratives

AD
NPFMCRFBK logo
Adedayo on NPF Microfinance Bank ·

NPF Microfinance Bank (NGX: NPFMCRFBK): Strong Earnings, Weak Liquidity?

Fair Value:₦356.7% overvalued
1 users have followed this narrative
0 users have commented on this narrative
0 users have liked this narrative
AD
BETAGLAS logo
Adedayo on Beta Glass ·

Beta Glass: Why I'm Waiting for a Better Entry Price

Fair Value:₦30087.6% overvalued
1 users have followed this narrative
0 users have commented on this narrative
0 users have liked this narrative
TR
tripledub
META logo
tripledub on Meta Platforms ·

The $135 Billion Bet That Should Make Every Shareholder Nervous

Fair Value:US$5860.7% overvalued
40 users have followed this narrative
3 users have commented on this narrative
0 users have liked this narrative

Popular Narratives

OS
oscargarcia
NVDA logo
oscargarcia on NVIDIA ·

The company that went from selling GPUs to gamers to becoming the AI arms dealer of the 21st century.

Fair Value:US$28026.2% undervalued
242 users have followed this narrative
9 users have commented on this narrative
16 users have liked this narrative
CU
MSFT logo
CubanEros on Microsoft ·

A wonderful business at reasonable price.

Fair Value:US$419.9116.1% overvalued
114 users have followed this narrative
0 users have commented on this narrative
7 users have liked this narrative
TR
tripledub
GOOGL logo
tripledub on Alphabet ·

Warren Buffett Just Bet $10 Billion on Google. The Catch? You May Already Be Too Late.

Fair Value:US$202.6284.3% overvalued
127 users have followed this narrative
1 users have commented on this narrative
18 users have liked this narrative

Trending Discussion