Returns On Capital At Man King Holdings (HKG:2193) Have Hit The Brakes

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Although, when we looked at Man King Holdings (HKG:2193), it didn't seem to tick all of these boxes.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for Man King Holdings:

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

0.088 = HK$24m ÷ (HK$355m - HK$85m) (Based on the trailing twelve months to September 2021).

Thus, Man King Holdings has an ROCE of 8.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 8.8%.

Check out our latest analysis for Man King Holdings

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

How Are Returns Trending?

Over the past five years, Man King Holdings' ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Man King Holdings to be a multi-bagger going forward.

The Bottom Line

In a nutshell, Man King Holdings has been trudging along with the same returns from the same amount of capital over the last five years. Since the stock has declined 67% over the last five years, investors may not be too optimistic on this trend improving either. 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.

One more thing to note, we've identified 2 warning signs with Man King Holdings and understanding them should be part of your investment process.

While Man King 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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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.