Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at AYS Ventures Berhad (KLSE:AYS) and its ROCE trend, we weren't exactly thrilled.

Understanding 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. Analysts use this formula to calculate it for AYS Ventures Berhad:

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

0.09 = RM49m ÷ (RM1.1b - RM575m) (Based on the trailing twelve months to March 2024).

Therefore, AYS Ventures Berhad has an ROCE of 9.0%. On its own that's a low return on capital but it's in line with the industry's average returns of 9.0%.

View our latest analysis for AYS Ventures 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 , check out these free graphs detailing revenue and cash flow performance of AYS Ventures Berhad.

The Trend Of ROCE

The returns on capital haven't changed much for AYS Ventures Berhad in recent years. The company has consistently earned 9.0% for the last five years, and the capital employed within the business has risen 92% in that time. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a side note, AYS Ventures Berhad's current liabilities are still rather high at 52% of total assets. 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.

The Key Takeaway

In conclusion, AYS Ventures Berhad has been investing more capital into the business, but returns on that capital haven't increased. Since the stock has gained an impressive 45% over the last five years, investors must think there's better things to come. But if the trajectory of these underlying trends continue, we think the likelihood of it being a multi-bagger from here isn't high.