Returns On Capital Are Showing Encouraging Signs At Hao Tian International Construction Investment Group (HKG:1341)

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Hao Tian International Construction Investment Group (HKG:1341) and its trend of ROCE, we really liked what we saw.

What Is 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. 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)

0.026 = HK$65m ÷ (HK$3.5b - HK$968m) (Based on the trailing twelve months to March 2023).

Therefore, Hao Tian International Construction Investment Group has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Trade Distributors industry average of 4.9%.

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.

So How Is Hao Tian International Construction Investment Group's ROCE Trending?

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. About five years ago the company was generating losses but things have turned around because it's now earning 2.6% on its capital. In addition to that, Hao Tian International Construction Investment Group is employing 424% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Hao Tian International Construction Investment Group's ROCE

In summary, it's great to see that Hao Tian International Construction Investment Group has managed to break into profitability and is continuing to reinvest in its business. And a remarkable 173% total return over the last five years tells us that investors are expecting more good things to come in the future. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to know some of the risks facing Hao Tian International Construction Investment Group we've found 2 warning signs (1 can't be ignored!) that you should be aware of before investing here.

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.