Returns On Capital At CIMC Enric Holdings (HKG:3899) Have Hit The Brakes

There are a few key trends to look for if we want to identify the next 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of CIMC Enric Holdings (HKG:3899) looks decent, right now, so lets see what the trend of returns can tell us.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for CIMC Enric Holdings, this is the formula:

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

0.11 = CN¥1.4b ÷ (CN¥24b - CN¥11b) (Based on the trailing twelve months to June 2023).

So, CIMC Enric Holdings has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 7.4% generated by the Machinery industry.

Check out our latest analysis for CIMC Enric Holdings

In the above chart we have measured CIMC Enric Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for CIMC Enric Holdings.

What Does the ROCE Trend For CIMC Enric Holdings Tell Us?

While the current returns on capital are decent, they haven't changed much. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 86% more capital into its operations. 11% is a pretty standard return, and it provides some comfort knowing that CIMC Enric Holdings has consistently earned this amount. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

On a separate but related note, it's important to know that CIMC Enric Holdings has a current liabilities to total assets ratio of 48%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On CIMC Enric Holdings' ROCE

To sum it up, CIMC Enric Holdings has simply been reinvesting capital steadily, at those decent rates of return. However, over the last five years, the stock has only delivered a 14% return to shareholders who held over that period. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

If you want to continue researching CIMC Enric Holdings, you might be interested to know about the 1 warning sign that our analysis has discovered.

While CIMC Enric 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.