29-04-2025
Investors Could Be Concerned With GDB Holdings Berhad's (KLSE:GDB) Returns On Capital
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. 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 GDB Holdings Berhad (KLSE:GDB) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
We've discovered 4 warning signs about GDB Holdings Berhad. View them for free.
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for GDB Holdings Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.17 = RM33m ÷ (RM373m - RM177m) (Based on the trailing twelve months to December 2024).
Therefore, GDB Holdings Berhad has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 10.0% generated by the Construction industry.
View our latest analysis for GDB Holdings 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 GDB Holdings Berhad has performed in the past in other metrics, you can view this free graph of GDB Holdings Berhad's past earnings, revenue and cash flow.
In terms of GDB Holdings Berhad's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 27%, but since then they've fallen to 17%. 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 separate but related note, it's important to know that GDB Holdings Berhad has a current liabilities to total assets ratio of 47%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.
In summary, we're somewhat concerned by GDB Holdings Berhad's diminishing returns on increasing amounts of capital. Long term shareholders who've owned the stock over the last five years have experienced a 22% 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.
If you'd like to know more about GDB Holdings Berhad, we've spotted 4 warning signs, and 2 of them can't be ignored.
While GDB Holdings 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.
