2 days ago
Returns On Capital Signal Tricky Times Ahead For Homeritz Corporation Berhad (KLSE:HOMERIZ)
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. In light of that, when we looked at Homeritz Corporation Berhad (KLSE:HOMERIZ) and its ROCE trend, we weren't exactly thrilled.
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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. Analysts use this formula to calculate it for Homeritz Corporation Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.12 = RM36m ÷ (RM331m - RM29m) (Based on the trailing twelve months to February 2025).
Therefore, Homeritz Corporation Berhad has an ROCE of 12%. In absolute terms, that's a satisfactory return, but compared to the Consumer Durables industry average of 4.4% it's much better.
Check out our latest analysis for Homeritz Corporation Berhad
Above you can see how the current ROCE for Homeritz Corporation Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for Homeritz Corporation Berhad .
In terms of Homeritz Corporation Berhad's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 17%, but since then they've fallen to 12%. 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. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
In summary, despite lower returns in the short term, we're encouraged to see that Homeritz Corporation Berhad is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 56% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.
If you want to continue researching Homeritz Corporation Berhad, you might be interested to know about the 2 warning signs that our analysis has discovered.
While Homeritz Corporation Berhad isn't earning the highest return, check out this free list of companies that are 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) 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.
