When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. Having said that, after a brief look, Ekovest Berhad (KLSE:EKOVEST) we aren't filled with optimism, but let's investigate further.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Ekovest Berhad is:

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

0.018 = RM178m ÷ (RM11b - RM1.4b) (Based on the trailing twelve months to September 2022).

Therefore, Ekovest Berhad has an ROCE of 1.8%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 5.3%.

See our latest analysis for Ekovest 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, revenue and cash flow of Ekovest Berhad, check out these free graphs here.

How Are Returns Trending?

We are a bit worried about the trend of returns on capital at Ekovest Berhad. Unfortunately the returns on capital have diminished from the 3.3% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. 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 Ekovest Berhad becoming one if things continue as they have.

The Bottom Line On Ekovest Berhad's ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. It should come as no surprise then that the stock has fallen 67% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

If you want to continue researching Ekovest Berhad, you might be interested to know about the 2 warning signs that our analysis has discovered.