UEM Edgenta Berhad (KLSE:EDGENTA) Is Finding It Tricky To Allocate Its Capital

Yahoo

26-05-2025

What financial metrics can indicate to us that a company is maturing or even in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. Basically the company is earning less on its investments and it is also reducing its total assets. In light of that, from a first glance at UEM Edgenta Berhad (KLSE:EDGENTA), we've spotted some signs that it could be struggling, so let's investigate.
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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. Analysts use this formula to calculate it for UEM Edgenta Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.072 = RM143m ÷ (RM3.0b - RM1.0b) (Based on the trailing twelve months to December 2024).
Therefore, UEM Edgenta Berhad has an ROCE of 7.2%. In absolute terms, that's a low return but it's around the Construction industry average of 8.2%.
See our latest analysis for UEM Edgenta Berhad
In the above chart we have measured UEM Edgenta Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for UEM Edgenta Berhad .
We are a bit worried about the trend of returns on capital at UEM Edgenta Berhad. To be more specific, the ROCE was 11% 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. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on UEM Edgenta Berhad becoming one if things continue as they have.
In summary, it's unfortunate that UEM Edgenta Berhad is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last five years have experienced a 51% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
If you want to continue researching UEM Edgenta Berhad, you might be interested to know about the 1 warning sign that our analysis has discovered.
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