The Returns At Lai Si Enterprise Holding (HKG:2266) Aren't Growing

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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 Lai Si Enterprise Holding (HKG:2266) and its ROCE trend, we weren't exactly thrilled.

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 Lai Si Enterprise Holding:

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

0.0043 = MO$508k ÷ (MO$184m - MO$66m) (Based on the trailing twelve months to June 2023).

Therefore, Lai Si Enterprise Holding has an ROCE of 0.4%. In absolute terms, that's a low return and it also under-performs the Construction industry average of 7.5%.

See our latest analysis for Lai Si Enterprise Holding

Historical performance is a great place to start when researching a stock so above you can see the gauge for Lai Si Enterprise Holding's ROCE against it's prior returns. If you'd like to look at how Lai Si Enterprise Holding has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

The Trend Of ROCE

We're a bit concerned with the trends, because the business is applying 43% less capital than it was five years ago and returns on that capital have stayed flat. When a company effectively decreases its assets base, it's not usually a sign to be optimistic on that company. Not only that, but the low returns on this capital mentioned earlier would leave most investors unimpressed.

The Bottom Line On Lai Si Enterprise Holding's ROCE

It's a shame to see that Lai Si Enterprise Holding is effectively shrinking in terms of its capital base. And investors appear hesitant that the trends will pick up because the stock has fallen 44% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you want to know some of the risks facing Lai Si Enterprise Holding we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

While Lai Si Enterprise Holding 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.