Returns At Leeport (Holdings) (HKG:387) Are On The Way Up

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. 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. With that in mind, we've noticed some promising trends at Leeport (Holdings) (HKG:387) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

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 Leeport (Holdings) is:

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

0.077 = HK$39m ÷ (HK$863m - HK$364m) (Based on the trailing twelve months to June 2023).

So, Leeport (Holdings) has an ROCE of 7.7%. On its own that's a low return, but compared to the average of 5.5% generated by the Trade Distributors industry, it's much better.

See our latest analysis for Leeport (Holdings)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Leeport (Holdings)'s ROCE against it's prior returns. If you're interested in investigating Leeport (Holdings)'s past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From Leeport (Holdings)'s ROCE Trend?

Leeport (Holdings) has not disappointed with their ROCE growth. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 271% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a separate but related note, it's important to know that Leeport (Holdings) has a current liabilities to total assets ratio of 42%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Leeport (Holdings)'s ROCE

To sum it up, Leeport (Holdings) is collecting higher returns from the same amount of capital, and that's impressive. Given the stock has declined 37% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 4 warning signs for Leeport (Holdings) (1 is potentially serious) you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.