AGX Group Berhad's (KLSE:AGX) Returns On Capital Not Reflecting Well On The Business
Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Although, when we looked at AGX Group Berhad (KLSE:AGX), it didn't seem to tick all of these boxes.
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. The formula for this calculation on AGX Group Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = RM17m ÷ (RM141m - RM35m) (Based on the trailing twelve months to September 2024).
So, AGX Group Berhad has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 5.4% generated by the Logistics industry.
See our latest analysis for AGX Group 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're interested in investigating AGX Group Berhad's past further, check out this free graph covering AGX Group Berhad's past earnings, revenue and cash flow.
When we looked at the ROCE trend at AGX Group Berhad, we didn't gain much confidence. To be more specific, ROCE has fallen from 34% over the last three years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
On a related note, AGX Group Berhad has decreased its current liabilities to 25% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.
While returns have fallen for AGX Group Berhad in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has followed suit returning a meaningful 53% to shareholders over the last year. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.
One more thing, we've spotted 2 warning signs facing AGX Group Berhad that you might find interesting.
While AGX Group Berhad 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.
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.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
13 minutes ago
- Yahoo
Institutions own 29% of Kossan Rubber Industries Bhd (KLSE:KOSSAN) shares but private companies control 36% of the company
The considerable ownership by private companies in Kossan Rubber Industries Bhd indicates that they collectively have a greater say in management and business strategy 53% of the business is held by the top 5 shareholders Insiders own 14% of Kossan Rubber Industries Bhd Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. Every investor in Kossan Rubber Industries Bhd (KLSE:KOSSAN) should be aware of the most powerful shareholder groups. We can see that private companies own the lion's share in the company with 36% ownership. Put another way, the group faces the maximum upside potential (or downside risk). Meanwhile, institutions make up 29% of the company's shareholders. Institutions often own shares in more established companies, while it's not unusual to see insiders own a fair bit of smaller companies. Let's take a closer look to see what the different types of shareholders can tell us about Kossan Rubber Industries Bhd. See our latest analysis for Kossan Rubber Industries Bhd Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing. As you can see, institutional investors have a fair amount of stake in Kossan Rubber Industries Bhd. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. When multiple institutions own a stock, there's always a risk that they are in a 'crowded trade'. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Kossan Rubber Industries Bhd's historic earnings and revenue below, but keep in mind there's always more to the story. Kossan Rubber Industries Bhd is not owned by hedge funds. Our data shows that Kossan Holdings (M) Sdn Bhd is the largest shareholder with 35% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 5.7% and 5.6%, of the shares outstanding, respectively. Additionally, the company's CEO Kuang Sia Lim directly holds 2.8% of the total shares outstanding. Our research also brought to light the fact that roughly 53% of the company is controlled by the top 5 shareholders suggesting that these owners wield significant influence on the business. While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. Quite a few analysts cover the stock, so you could look into forecast growth quite easily. While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves. Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances. It seems insiders own a significant proportion of Kossan Rubber Industries Bhd. It is very interesting to see that insiders have a meaningful RM608m stake in this RM4.3b business. Most would say this shows a good degree of alignment with shareholders, especially in a company of this size. You can click here to see if those insiders have been buying or selling. The general public, who are usually individual investors, hold a 21% stake in Kossan Rubber Industries Bhd. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies. We can see that Private Companies own 36%, of the shares on issue. It might be worth looking deeper into this. If related parties, such as insiders, have an interest in one of these private companies, that should be disclosed in the annual report. Private companies may also have a strategic interest in the company. It's always worth thinking about the different groups who own shares in a company. But to understand Kossan Rubber Industries Bhd better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Kossan Rubber Industries Bhd , and understanding them should be part of your investment process. If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its future. NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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. Sign in to access your portfolio
Yahoo
3 hours ago
- Yahoo
Returns On Capital Signal Tricky Times Ahead For L&P Global Berhad (KLSE:L&PBHD)
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at L&P Global Berhad (KLSE:L&PBHD) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look. AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. 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 L&P Global Berhad, this is the formula: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities) 0.088 = RM12m ÷ (RM142m - RM9.2m) (Based on the trailing twelve months to March 2025). Therefore, L&P Global Berhad has an ROCE of 8.8%. On its own, that's a low figure but it's around the 7.3% average generated by the Packaging industry. See our latest analysis for L&P Global Berhad Historical performance is a great place to start when researching a stock so above you can see the gauge for L&P Global Berhad's ROCE against it's prior returns. If you'd like to look at how L&P Global Berhad has performed in the past in other metrics, you can view this free graph of L&P Global Berhad's past earnings, revenue and cash flow. When we looked at the ROCE trend at L&P Global Berhad, we didn't gain much confidence. To be more specific, ROCE has fallen from 26% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. If this were to continue, you might be looking at a company that is trying to reinvest for growth but is actually losing market share since sales haven't increased. On a related note, L&P Global Berhad has decreased its current liabilities to 6.5% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money. We're a bit apprehensive about L&P Global Berhad because despite more capital being deployed in the business, returns on that capital and sales have both fallen. Long term shareholders who've owned the stock over the last year have experienced a 68% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere. Like most companies, L&P Global Berhad does come with some risks, and we've found 3 warning signs that you should be aware of. While L&P Global Berhad 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. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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. Sign in to access your portfolio
Yahoo
4 hours ago
- Yahoo
Be Wary Of Jaycorp Berhad (KLSE:JAYCORP) And Its Returns On Capital
When researching a stock for investment, what can tell us that the company is in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. On that note, looking into Jaycorp Berhad (KLSE:JAYCORP), we weren't too upbeat about how things were going. AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. 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. The formula for this calculation on Jaycorp Berhad is: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities) 0.063 = RM13m ÷ (RM245m - RM38m) (Based on the trailing twelve months to January 2025). Therefore, Jaycorp Berhad has an ROCE of 6.3%. In absolute terms, that's a low return, but it's much better than the Consumer Durables industry average of 4.4%. View our latest analysis for Jaycorp 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 Jaycorp Berhad has performed in the past in other metrics, you can view this free graph of Jaycorp Berhad's past earnings, revenue and cash flow. There is reason to be cautious about Jaycorp Berhad, given the returns are trending downwards. To be more specific, the ROCE was 15% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Jaycorp Berhad to turn into a multi-bagger. In summary, it's unfortunate that Jaycorp Berhad is generating lower returns from the same amount of capital. Since the stock has skyrocketed 103% over the last five years, it looks like investors have high expectations of the stock. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now. Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for Jaycorp Berhad (of which 1 makes us a bit uncomfortable!) that you should know about. 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. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) 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. Sign in to access your portfolio
