The Returns At Haitian International Holdings (HKG:1882) Aren't Growing

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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, when we ran our eye over Haitian International Holdings' (HKG:1882) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Haitian International Holdings is:

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

0.18 = CN¥2.7b ÷ (CN¥23b - CN¥8.2b) (Based on the trailing twelve months to December 2020).

Therefore, Haitian International Holdings has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Machinery industry average of 9.1% it's much better.

See our latest analysis for Haitian International Holdings

Above you can see how the current ROCE for Haitian International Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Haitian International Holdings.

The Trend Of ROCE

While the current returns on capital are decent, they haven't changed much. The company has employed 60% more capital in the last five years, and the returns on that capital have remained stable at 18%. Since 18% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On Haitian International Holdings' ROCE

In the end, Haitian International Holdings has proven its ability to adequately reinvest capital at good rates of return. And the stock has done incredibly well with a 141% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

One more thing, we've spotted 1 warning sign facing Haitian International Holdings that you might find interesting.

While Haitian International Holdings 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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