What are the underlying trends that indicate a company may be in decline? Typically, we see both. return A decline in return on invested capital (ROCE) is usually amount Invested capital is down 20%. This indicates that not only is the company reducing the size of its net assets, but its profits are also declining. At first glance, the situation does not look very good. Globetronics Technology Bhd (KLSE:GTRONIC), let's take a look at why.
What is Return on Invested Capital (ROCE)?
For those who don't know, ROCE is the ratio of a company's annual pre-tax profit (revenue) to the capital employed in the business, and the formula for Globetronics Technology Bhd is:
Return on Invested Capital = Earnings Before Interest and Taxes (EBIT) ÷ (Total Assets – Current Liabilities)
0.098 = RM30m ÷ (RM326m – RM22m) (Based on the trailing 12 months ending March 2024).
therefore, Globetronics Technology Bhd has an ROCE of 9.8%. That's a low return in itself, but it's much better than the average 7.5% generated by the semiconductor industry.
View our latest analysis for Globetronics Technology Bhd
Above we can see how Globetronics Technology Bhd's current ROCE compares to its prior returns on capital, but the history can only tell us so much, and if you want to see what analysts are predicting going forward you can check this free analyst report on Globetronics Technology Bhd.
What are the trends in returns?
Looking at Globetronics Technology Bhd's historical ROCE over time, the trend does not inspire confidence. Specifically, five years ago, its ROCE was 21% but has declined significantly since then. Additionally, it is worth noting that the amount of capital deployed in the business has remained relatively stable. Companies that exhibit these characteristics tend not to be shrinking, but are mature and may be facing competitive margin pressure. If these trends continue, we would not expect Globetronics Technology Bhd to turn into a multi-bagger.
Our view on Globetronics Technology Bhd's ROCE
In summary, it's unfortunate to see Globetronics Technology Bhd generating lower returns from the same amount of capital, and long term shareholders have seen their investments flatline over the past five years – unless these metrics start to get on a more positive trajectory, we'll be looking elsewhere.
Finally, we 1 warning sign for Globetronics Technology Bhd This is something you should know about.
Globetronics Technology Bhd may not be currently earning the highest profit margins, but we have compiled a list of companies currently earning return on equity above 25%, which you can see here. free I'll list them here.
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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
