If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. And from a first read, things don't look too good at UPA Corporation Berhad (KLSE:UPA), so let's see why.

What Is Return On Capital Employed (ROCE)?

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 UPA Corporation Berhad:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.042 = RM12m ÷ (RM306m - RM23m) (Based on the trailing twelve months to June 2022).

Therefore, UPA Corporation Berhad has an ROCE of 4.2%. Ultimately, that's a low return and it under-performs the Forestry industry average of 5.9%.

Check out our latest analysis for UPA Corporation 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 UPA Corporation Berhad has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is UPA Corporation Berhad's ROCE Trending?

In terms of UPA Corporation Berhad's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 24% that they were earning five years ago. 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 UPA Corporation Berhad becoming one if things continue as they have.

In Conclusion...

In summary, it's unfortunate that UPA Corporation Berhad is generating lower returns from the same amount of capital. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.