If you're looking at a mature business that's past the growth phase, what are some of the underlying trends that pop up? When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after we looked into Crest Builder Holdings Berhad (KLSE:CRESBLD), the trends above didn't look too great.

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. To calculate this metric for Crest Builder Holdings Berhad, this is the formula:

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

0.012 = RM9.0m ÷ (RM1.3b - RM573m) (Based on the trailing twelve months to September 2023).

So, Crest Builder Holdings Berhad has an ROCE of 1.2%. Ultimately, that's a low return and it under-performs the Construction industry average of 6.3%.

See our latest analysis for Crest Builder Holdings Berhad

Historical performance is a great place to start when researching a stock so above you can see the gauge for Crest Builder Holdings Berhad's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Crest Builder Holdings Berhad, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

In terms of Crest Builder Holdings Berhad's historical ROCE trend, it isn't fantastic. Unfortunately, returns have declined substantially over the last five years to the 1.2% we see today. On top of that, the business is utilizing 20% less capital within its operations. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.

On a separate but related note, it's important to know that Crest Builder Holdings Berhad has a current liabilities to total assets ratio of 43%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.