Returns On Capital Signal Difficult Times Ahead For Federal International Holdings Berhad (KLSE:FIHB)
If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? 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. In light of that, from a first glance at Federal International Holdings Berhad (KLSE:FIHB), we've spotted some signs that it could be struggling, so let's investigate.
Return On Capital Employed (ROCE): What Is It?
If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Federal International Holdings Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0061 = RM739k ÷ (RM194m - RM73m) (Based on the trailing twelve months to September 2025).
Thus, Federal International Holdings Berhad has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Consumer Durables industry average of 8.8%.
See our latest analysis for Federal International Holdings 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'd like to look at how Federal International Holdings Berhad has performed in the past in other metrics, you can view this free graph of Federal International Holdings Berhad's past earnings, revenue and cash flow.
How Are Returns Trending?
There is reason to be cautious about Federal International Holdings Berhad, given the returns are trending downwards. About five years ago, returns on capital were 5.2%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Federal International Holdings Berhad to turn into a multi-bagger.
Our Take On Federal International Holdings Berhad's ROCE
In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. Investors haven't taken kindly to these developments, since the stock has declined 32% from where it was five years ago. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.
One final note, you should learn about the 4 warning signs we've spotted with Federal International Holdings Berhad (including 3 which can't be ignored) .
While Federal International Holdings 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.