Returns On Capital Signal Tricky Times Ahead For Dufu Technology Berhad (KLSE:DUFU)
What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So while Dufu Technology Berhad (KLSE:DUFU) has a high ROCE right now, lets see what we can decipher from how returns are changing.
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Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Dufu Technology Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.28 = RM113m ÷ (RM451m - RM51m) (Based on the trailing twelve months to March 2025).
Thus, Dufu Technology Berhad has an ROCE of 28%. In absolute terms that's a great return and it's even better than the Machinery industry average of 7.3%.
View our latest analysis for Dufu Technology Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Dufu Technology Berhad's ROCE against it's prior returns. If you're interested in investigating Dufu Technology Berhad's past further, check out this free graph covering Dufu Technology Berhad's past earnings, revenue and cash flow.
In terms of Dufu Technology Berhad's historical ROCE movements, the trend isn't fantastic. To be more specific, while the ROCE is still high, it's fallen from 54% where it was five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. If these investments prove successful, this can bode very well for long term stock performance.
In summary, despite lower returns in the short term, we're encouraged to see that Dufu Technology Berhad is reinvesting for growth and has higher sales as a result. However, despite the promising trends, the stock has fallen 41% over the last five years, so there might be an opportunity here for astute investors. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.
One more thing: We've identified 2 warning signs with Dufu Technology Berhad (at least 1 which doesn't sit too well with us) , and understanding them would certainly be useful.
High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.
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.
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