The Trends At Ever Sunshine Lifestyle Services Group (HKG:1995) That You Should Know About

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing 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. That's why when we briefly looked at Ever Sunshine Lifestyle Services Group's (HKG:1995) ROCE trend, we were pretty happy with what we saw.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for Ever Sunshine Lifestyle Services Group:

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

0.16 = CN¥451m ÷ (CN¥4.2b - CN¥1.3b) (Based on the trailing twelve months to June 2020).

So, Ever Sunshine Lifestyle Services Group has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 9.3% generated by the Commercial Services industry.

See our latest analysis for Ever Sunshine Lifestyle Services Group

Above you can see how the current ROCE for Ever Sunshine Lifestyle Services Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Ever Sunshine Lifestyle Services Group.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. Over the past four years, ROCE has remained relatively flat at around 16% and the business has deployed 1,691% more capital into its operations. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

On a side note, Ever Sunshine Lifestyle Services Group has done well to reduce current liabilities to 31% of total assets over the last four years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.

What We Can Learn From Ever Sunshine Lifestyle Services Group's ROCE

To sum it up, Ever Sunshine Lifestyle Services Group has simply been reinvesting capital steadily, at those decent rates of return. And the stock has done incredibly well with a 275% return over the last year, so long term investors are no doubt ecstatic with that result. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

One more thing to note, we've identified 1 warning sign with Ever Sunshine Lifestyle Services Group and understanding this should be part of your investment process.

While Ever Sunshine Lifestyle Services Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. 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.
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