Yahoo Finance The Return Trends At Cuscapi Berhad (KLSE:CUSCAPI) Look Promising
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Cuscapi Berhad's (KLSE:CUSCAPI) returns on capital, so let's have a look.
What Is 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 Cuscapi Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.036 = RM2.0m ÷ (RM68m - RM11m) (Based on the trailing twelve months to December 2023).
Thus, Cuscapi Berhad has an ROCE of 3.6%. In absolute terms, that's a low return and it also under-performs the Software industry average of 9.0%.
Check out our latest analysis for Cuscapi Berhad
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'd like to look at how Cuscapi Berhad has performed in the past in other metrics, you can view this free graph of Cuscapi Berhad's past earnings, revenue and cash flow.
What Does the ROCE Trend For Cuscapi Berhad Tell Us?
It's great to see that Cuscapi Berhad has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 3.6% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 41%. This could potentially mean that the company is selling some of its assets.
The Bottom Line On Cuscapi Berhad's ROCE
From what we've seen above, Cuscapi Berhad has managed to increase it's returns on capital all the while reducing it's capital base. Astute investors may have an opportunity here because the stock has declined 22% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.
On a separate note, we've found 2 warning signs for Cuscapi Berhad you'll probably want to know about.
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. 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.
