Investors Will Want Hao Tian International Construction Investment Group's (HKG:1341) Growth In ROCE To Persist

What trends should we look for it we want to identify stocks that can 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So on that note, Hao Tian International Construction Investment Group (HKG:1341) looks quite promising in regards to its trends of return on capital.

Return On Capital Employed (ROCE): What Is It?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Hao Tian International Construction Investment Group:

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

0.02 = HK$47m ÷ (HK$2.8b - HK$425m) (Based on the trailing twelve months to September 2023).

Thus, Hao Tian International Construction Investment Group has an ROCE of 2.0%. Ultimately, that's a low return and it under-performs the Trade Distributors industry average of 5.0%.

View our latest analysis for Hao Tian International Construction Investment Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Hao Tian International Construction Investment Group's ROCE against it's prior returns. If you're interested in investigating Hao Tian International Construction Investment Group's past further, check out this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

We're delighted to see that Hao Tian International Construction Investment Group is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 2.0% which is a sight for sore eyes. Not only that, but the company is utilizing 277% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

In Conclusion...

Long story short, we're delighted to see that Hao Tian International Construction Investment Group's reinvestment activities have paid off and the company is now profitable. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

On a final note, we've found 2 warning signs for Hao Tian International Construction Investment Group that we think you should be aware of.

While Hao Tian International Construction Investment 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. 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.