We Like These Underlying Return On Capital Trends At AP Rentals Holdings (HKG:1496)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, AP Rentals Holdings (HKG:1496) looks quite promising in regards to its trends of return on capital.

Our free stock report includes 1 warning sign investors should be aware of before investing in AP Rentals Holdings. Read for free now.

Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on AP Rentals Holdings is:

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

0.049 = HK$12m ÷ (HK$345m - HK$95m) (Based on the trailing twelve months to September 2024).

Thus, AP Rentals Holdings has an ROCE of 4.9%. On its own, that's a low figure but it's around the 6.0% average generated by the Trade Distributors industry.

Check out our latest analysis for AP Rentals Holdings

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 AP Rentals Holdings.

What Does the ROCE Trend For AP Rentals Holdings Tell Us?

We're delighted to see that AP Rentals Holdings is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 4.9% on its capital. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

What We Can Learn From AP Rentals Holdings' ROCE

In summary, we're delighted to see that AP Rentals Holdings has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And since the stock has fallen 19% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

On a separate note, we've found 1 warning sign for AP Rentals Holdings you'll probably want to know about.

While AP Rentals Holdings 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.