Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at Pintaras Jaya Berhad (KLSE:PTARAS), it didn't seem to tick all of these boxes.
What Is Return On Capital Employed (ROCE)?
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 Pintaras Jaya Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.000084 = RM36k ÷ (RM551m - RM122m) (Based on the trailing twelve months to March 2023).
So, Pintaras Jaya Berhad has an ROCE of 0.008%. Ultimately, that's a low return and it under-performs the Construction industry average of 5.9%.
See our latest analysis for Pintaras Jaya Berhad
Above you can see how the current ROCE for Pintaras Jaya Berhad compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Pintaras Jaya Berhad.
The Trend Of ROCE
On the surface, the trend of ROCE at Pintaras Jaya Berhad doesn't inspire confidence. To be more specific, ROCE has fallen from 5.2% 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.
While on the subject, we noticed that the ratio of current liabilities to total assets has risen to 22%, which has impacted the ROCE. Without this increase, it's likely that ROCE would be even lower than 0.008%. While the ratio isn't currently too high, it's worth keeping an eye on this because if it gets particularly high, the business could then face some new elements of risk.
The Key Takeaway
From the above analysis, we find it rather worrisome that returns on capital and sales for Pintaras Jaya Berhad have fallen, meanwhile the business is employing more capital than it was five years ago. Investors haven't taken kindly to these developments, since the stock has declined 12% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.