Some Investors May Be Worried About S.F. Holding's (SZSE:002352) Returns On Capital

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. However, after investigating S.F. Holding (SZSE:002352), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for S.F. Holding, this is the formula:

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

0.079 = CN¥11b ÷ (CN¥220b - CN¥77b) (Based on the trailing twelve months to June 2024).

Thus, S.F. Holding has an ROCE of 7.9%. On its own, that's a low figure but it's around the 6.9% average generated by the Logistics industry.

View our latest analysis for S.F. Holding

Above you can see how the current ROCE for S.F. Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering S.F. Holding for free.

So How Is S.F. Holding's ROCE Trending?

In terms of S.F. Holding's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 7.9% from 11% five years ago. However it looks like S.F. Holding 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 may take some time before the company starts to see any change in earnings from these investments.

Our Take On S.F. Holding's ROCE

To conclude, we've found that S.F. Holding is reinvesting in the business, but returns have been falling. And investors may be recognizing these trends since the stock has only returned a total of 13% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

On a final note, we've found 1 warning sign for S.F. Holding that we think you should be aware of.

While S.F. Holding 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.