03-03-2025
GDEX Berhad (KLSE:GDEX) Is Finding It Tricky To Allocate Its Capital
When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. 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 indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. In light of that, from a first glance at GDEX Berhad (KLSE:GDEX), we've spotted some signs that it could be struggling, so let's investigate.
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 GDEX Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.011 = RM5.8m ÷ (RM603m - RM95m) (Based on the trailing twelve months to December 2024).
Thus, GDEX Berhad has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 5.0%.
Check out our latest analysis for GDEX 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of GDEX Berhad.
In terms of GDEX Berhad's historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 5.2%, however they're now substantially lower than that as we saw above. 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. If these trends continue, we wouldn't expect GDEX Berhad to turn into a multi-bagger.
In summary, it's unfortunate that GDEX Berhad is generating lower returns from the same amount of capital. And long term shareholders have watched their investments stay flat over the last five years. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.
On a separate note, we've found 1 warning sign for GDEX Berhad you'll probably want to know about.
While GDEX 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.
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