INNEOVA Holdings (NASDAQ:INEO) Is Reinvesting At Lower Rates Of Return

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 INNEOVA Holdings (NASDAQ:INEO) and its ROCE trend, we weren't exactly thrilled.

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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. To calculate this metric for INNEOVA Holdings, this is the formula:

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

0.0058 = US$87k ÷ (US$53m - US$38m) (Based on the trailing twelve months to June 2025).

Therefore, INNEOVA Holdings has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Retail Distributors industry average of 14%.

View our latest analysis for INNEOVA Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of INNEOVA Holdings.

So How Is INNEOVA Holdings' ROCE Trending?

When we looked at the ROCE trend at INNEOVA Holdings, we didn't gain much confidence. Around four years ago the returns on capital were 9.5%, but since then they've fallen to 0.6%. However it looks like INNEOVA Holdings might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

Another thing to note, INNEOVA Holdings has a high ratio of current liabilities to total assets of 72%. 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...

Bringing it all together, while we're somewhat encouraged by INNEOVA Holdings' reinvestment in its own business, we're aware that returns are shrinking. Moreover, since the stock has crumbled 74% over the last year, it appears investors are expecting the worst. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for INNEOVA Holdings (of which 3 can't be ignored!) that you should know about.

While INNEOVA Holdings 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.