Returns At IBI Group Holdings (HKG:1547) Appear To Be Weighed Down

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at IBI Group Holdings (HKG:1547) and its ROCE trend, we weren't exactly thrilled.

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

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. To calculate this metric for IBI Group Holdings, this is the formula:

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

0.16 = HK$26m ÷ (HK$351m - HK$187m) (Based on the trailing twelve months to September 2024).

Thus, IBI Group Holdings has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 5.9% it's much better.

See our latest analysis for IBI Group 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're interested in investigating IBI Group Holdings' past further, check out this free graph covering IBI Group Holdings' past earnings, revenue and cash flow.

What Can We Tell From IBI Group Holdings' ROCE Trend?

There hasn't been much to report for IBI Group Holdings' returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So unless we see a substantial change at IBI Group Holdings in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger.

On a side note, IBI Group Holdings has done well to reduce current liabilities to 53% of total assets over the last five 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. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

The Key Takeaway

In a nutshell, IBI Group Holdings has been trudging along with the same returns from the same amount of capital over the last five years. And investors appear hesitant that the trends will pick up because the stock has fallen 26% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

IBI Group Holdings does have some risks, we noticed 3 warning signs (and 1 which can't be ignored) we think you should know about.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.