When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. So after glancing at the trends within Imaspro Corporation Berhad (KLSE:IMASPRO), we weren't too hopeful.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Imaspro Corporation Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.019 = RM2.4m ÷ (RM133m - RM2.3m) (Based on the trailing twelve months to September 2024).
So, Imaspro Corporation Berhad has an ROCE of 1.9%. Ultimately, that's a low return and it under-performs the Chemicals industry average of 7.9%.
See our latest analysis for Imaspro Corporation Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Imaspro Corporation Berhad's ROCE against it's prior returns. If you're interested in investigating Imaspro Corporation Berhad's past further, check out this free graph covering Imaspro Corporation Berhad's past earnings, revenue and cash flow.
The Trend Of ROCE
We are a bit worried about the trend of returns on capital at Imaspro Corporation Berhad. Unfortunately the returns on capital have diminished from the 2.5% 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. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on Imaspro Corporation Berhad becoming one if things continue as they have.
Our Take On Imaspro Corporation Berhad's ROCE
All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Long term shareholders who've owned the stock over the last five years have experienced a 55% depreciation in their investment, so it appears the market might not like these trends either. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.