If you want to find stocks that are likely to continue to grow over the long term, what underlying trends should you look for? One common approach is to Return value Return on invested capital (ROCE) is increasing, amount More than 100% of invested capital. When you see this figure, it usually means it’s a company with a good business model and lots of profitable reinvestment opportunities. With this in mind, we’ve noticed some encouraging trends. Radiant Global Tech (KLSE:RGTECH) Let’s take a closer look.
What is Return on Invested Capital (ROCE)?
For those who haven’t used ROCE before, it measures the ‘return on investment’ (profit before tax) a company generates from the capital employed in its business. The formula for calculating this metric for Radiant Globaltech Berhad is:
Return on Invested Capital = Earnings Before Interest and Taxes (EBIT) ÷ (Total Assets – Current Liabilities)
0.18 = RM14m ÷ (RM111m – RM35m) (Based on the trailing 12 months ending December 2023).
So, Radiant Globaltech Berhad has an ROCE of 18%. In absolute terms, this is a satisfactory return, but compared to the electronics industry average of 11%, it is far better.
View our latest analysis for Radiant Globaltech Berhad
The past is no reflection of the future. But it’s useful to know how a company has performed in the past, which is why we have provided the chart above. If you’d like to dive deeper into past earnings, check out: free A detailed chart showing Radiant Globaltech Berhad’s earnings and cash flow performance.
ROCE Trends
Investors will be happy with what’s happening at Radiant Globaltech Berhad. Data shows that return on capital has increased significantly to 18% over the past five years. Essentially, the business is earning more revenue per dollar of capital invested, plus there is now 24% more capital employed. Increasing returns on increasing capital is common among multi-baggers, which is why we’re impressed.
However, records show that the company’s current liabilities have increased notably over this period, which could be partially responsible for the growth in ROCE. Current liabilities have increased to 32% of total assets, and the business is now increasingly funded by suppliers, short-term creditors etc. This is worth noting, as as the ratio of current liabilities to total assets increases, so does the risk profile.
Our view on Radiant Globaltech Berhad’s ROCE
To summarise, it’s great to see Radiant Globaltech Berhad being able to generate compound interest by continually reinvesting capital and increasing rates of return, as these are some of the key ingredients of a highly popular multi-bagger. And with a respectable 86% dividend being awarded to those who have held shares in the past five years, it’s fair to say that these developments are starting to get the attention they deserve. With that in mind, I think it’s worth investigating this stock further as if Radiant Globaltech Berhad can maintain these trends, a bright future could be in store.
If you want to know about the risks facing Radiant Globaltech Berhad, 1. Warning Signs Something you should know.
For those who want to invest A solid company, Check this out free A list of companies with strong balance sheets and high return on equity.
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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.
