Returns At Huayu Expressway Group (HKG:1823) Are On The Way Up

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Speaking of which, we noticed some great changes in Huayu Expressway Group's (HKG:1823) returns on capital, so let's have a look.

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. The formula for this calculation on Huayu Expressway Group is:

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

0.15 = HK$303m ÷ (HK$2.3b - HK$276m) (Based on the trailing twelve months to June 2021).

So, Huayu Expressway Group has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 8.1% it's much better.

Check out our latest analysis for Huayu Expressway Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Huayu Expressway Group's ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Huayu Expressway Group, check out these free graphs here.

What Can We Tell From Huayu Expressway Group's ROCE Trend?

Huayu Expressway Group is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 15%. Basically the business is earning more per dollar of capital invested and in addition to that, 46% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Huayu Expressway Group's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Huayu Expressway Group has. 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.

One final note, you should learn about the 2 warning signs we've spotted with Huayu Expressway Group (including 1 which can't be ignored) .

While Huayu Expressway 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.

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.

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