Returns On Capital At HeiTech Padu Berhad (KLSE:HTPADU) Paint A Concerning Picture
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at HeiTech Padu Berhad (KLSE:HTPADU), they do have a high ROCE, but we weren't exactly elated from how returns are trending.
Return On Capital Employed (ROCE): What Is It?
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. The formula for this calculation on HeiTech Padu Berhad is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = RM52m ÷ (RM750m - RM483m) (Based on the trailing twelve months to September 2025).
So, HeiTech Padu Berhad has an ROCE of 20%. In absolute terms that's a great return and it's even better than the IT industry average of 13%.
See our latest analysis for HeiTech Padu Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for HeiTech Padu Berhad's ROCE against it's prior returns. If you're interested in investigating HeiTech Padu Berhad's past further, check out this free graph covering HeiTech Padu Berhad's past earnings, revenue and cash flow.
What Can We Tell From HeiTech Padu Berhad's ROCE Trend?
The trend of ROCE doesn't look fantastic because it's fallen from 45% five years ago, while the business's capital employed increased by 94%. Usually this isn't ideal, but given HeiTech Padu Berhad conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. It's unlikely that all of the funds raised have been put to work yet, so as a consequence HeiTech Padu Berhad might not have received a full period of earnings contribution from it.
Another thing to note, HeiTech Padu Berhad has a high ratio of current liabilities to total assets of 64%. 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.
Our Take On HeiTech Padu Berhad's ROCE
In summary, HeiTech Padu Berhad is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Although the market must be expecting these trends to improve because the stock has gained 60% over the last five years. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.
If you'd like to know more about HeiTech Padu Berhad, we've spotted 3 warning signs, and 2 of them don't sit too well with us.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.
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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.