Returns On Capital At Bonia Corporation Berhad (KLSE:BONIA) Have Hit The Brakes

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Although, when we looked at Bonia Corporation Berhad (KLSE:BONIA), 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. The formula for this calculation on Bonia Corporation Berhad is:

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

0.097 = RM60m ÷ (RM715m - RM95m) (Based on the trailing twelve months to June 2024).

So, Bonia Corporation Berhad has an ROCE of 9.7%. On its own, that's a low figure but it's around the 12% average generated by the Specialty Retail industry.

See our latest analysis for Bonia Corporation Berhad

In the above chart we have measured Bonia Corporation Berhad's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for Bonia Corporation Berhad .

How Are Returns Trending?

The returns on capital haven't changed much for Bonia Corporation Berhad in recent years. The company has consistently earned 9.7% for the last five years, and the capital employed within the business has risen 39% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Key Takeaway

In conclusion, Bonia Corporation Berhad has been investing more capital into the business, but returns on that capital haven't increased. Yet to long term shareholders the stock has gifted them an incredible 108% return in the last five years, so the market appears to be rosy about its future. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a separate note, we've found 3 warning signs for Bonia Corporation Berhad you'll probably want to know about.

While Bonia Corporation Berhad may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.