Some Investors May Be Worried About Crest Group Berhad's (KLSE:CREST) Returns On Capital
There are a few key trends to look for if we want to identify the next 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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating Crest Group Berhad (KLSE:CREST), we don't think it's current trends fit the mold of a multi-bagger.
What Is Return On Capital Employed (ROCE)?
For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Crest Group Berhad, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.14 = RM16m ÷ (RM152m - RM36m) (Based on the trailing twelve months to September 2025).
So, Crest Group Berhad has an ROCE of 14%. On its own, that's a standard return, however it's much better than the 11% generated by the Electronic industry.
View our latest analysis for Crest Group 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 Crest Group Berhad.
What The Trend Of ROCE Can Tell Us
On the surface, the trend of ROCE at Crest Group Berhad doesn't inspire confidence. Around four years ago the returns on capital were 34%, but since then they've fallen to 14%. However it looks like Crest Group Berhad might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.
On a related note, Crest Group Berhad has decreased its current liabilities to 24% of total assets. That could partly explain why the ROCE has dropped. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.
The Key Takeaway
In summary, Crest Group Berhad is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. Since the stock has declined 20% over the last year, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Crest Group Berhad has the makings of a multi-bagger.
Crest Group Berhad does come with some risks though, we found 5 warning signs in our investment analysis, and 2 of those don't sit too well with us...
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.