These performance metrics don’t make Berjaya Berhad’s (KLSE:BJASSET) assets look too strong
When we’re researching a business, it’s sometimes hard to find the warning signs, but certain financial metrics can help spot problems early. When we see a decline come back on capital employed (ROCE) in connection with a decrease base capital employed, this is often how a mature company shows signs of aging. This reveals that the company is not increasing shareholder wealth because returns are falling and its net asset base is shrinking. So, after considering Assets Berjaya Berhad (KLSE: BJASSET), the trends above didn’t look too good.
What is return on capital employed (ROCE)?
Just to clarify if you’re not sure, ROCE is a measure of the pre-tax income (as a percentage) that a business earns on the capital invested in its business. To calculate this metric for Berjaya Assets Berhad, here is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.0062 = RM18m ÷ (RM3.1b – RM281m) (Based on the last twelve months to June 2022).
So, Berjaya Assets Berhad has a ROCE of 0.6%. Ultimately, that’s a poor yield and it’s below the hotel industry average of 5.3%.
Historical performance is a great starting point when researching a stock. So you can see Berjaya Assets Berhad’s ROCE gauge above against its past returns. If you want to dive deep into the earnings, revenue and cash flow history of Berjaya Assets Berhad, check out these free graphics here.
What does the ROCE trend tell us for Berjaya Assets Berhad?
There is reason to be cautious about Berjaya Assets Berhad as yields are trending lower. To be more precise, the ROCE was 2.5% five years ago, but since then it has fallen significantly. In addition to this, it should be noted that the amount of capital used within the company remained relatively stable. Given that yields are down and the business is using the same amount of assets, this may suggest that it is a mature business that hasn’t seen much growth over the past five years. . If these trends continue, we don’t expect Berjaya Assets Berhad to become a multi-bagger.
The final result on the ROCE of Berjaya Assets Berhad
Ultimately, the tendency for lower returns on the same amount of capital is generally not an indication that we are considering a growth stock. Long-term shareholders who have held the shares for the past five years have experienced a 42% depreciation in their investment, so it looks like the market might not like these trends either. That being the case, unless the underlying trends return to a more positive trajectory, we would consider looking elsewhere.
On a separate note, we found 1 warning sign for Berjaya Assets Berhad you will probably want to know more.
Although Berjaya Assets Berhad does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. look at this free list here.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.
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