Yahoo Finance These Return Metrics Don't Make Ekovest Berhad (KLSE:EKOVEST) Look Too Strong
Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? 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 indicates the company is producing less profit from its investments and its total assets are decreasing. And from a first read, things don't look too good at Ekovest Berhad (KLSE:EKOVEST), so let's see why.
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. Analysts use this formula to calculate it for Ekovest Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.028 = RM271m ÷ (RM11b - RM1.6b) (Based on the trailing twelve months to March 2024).
So, Ekovest Berhad has an ROCE of 2.8%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 7.7%.
Check out our latest analysis for Ekovest Berhad
Above you can see how the current ROCE for Ekovest Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Ekovest Berhad for free.
What The Trend Of ROCE Can Tell Us
We are a bit worried about the trend of returns on capital at Ekovest Berhad. About five years ago, returns on capital were 4.2%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. 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 Ekovest Berhad to turn into a multi-bagger.
In Conclusion...
In summary, it's unfortunate that Ekovest Berhad is generating lower returns from the same amount of capital. Investors haven't taken kindly to these developments, since the stock has declined 45% from where it was five years ago. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.
Ekovest Berhad does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...
For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.
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