Returns Are Gaining Momentum At Kwong Man Kee Group (HKG:8023)

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Kwong Man Kee Group (HKG:8023) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Kwong Man Kee Group is:

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

0.14 = HK$18m ÷ (HK$197m - HK$63m) (Based on the trailing twelve months to September 2024).

Thus, Kwong Man Kee Group has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 5.9% it's much better.

View our latest analysis for Kwong Man Kee Group

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

What Does the ROCE Trend For Kwong Man Kee Group Tell Us?

The trends we've noticed at Kwong Man Kee Group are quite reassuring. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 14%. Basically the business is earning more per dollar of capital invested and in addition to that, 67% more capital is being employed now too. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

The Key Takeaway

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Kwong Man Kee Group has. Astute investors may have an opportunity here because the stock has declined 23% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a final note, we found 3 warning signs for Kwong Man Kee Group (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.