The Returns At Xinyi Glass Holdings (HKG:868) Aren't Growing

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. 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, the ROCE of Xinyi Glass Holdings (HKG:868) 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. Analysts use this formula to calculate it for Xinyi Glass Holdings:

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

0.16 = HK$6.1b ÷ (HK$51b - HK$13b) (Based on the trailing twelve months to June 2024).

Therefore, Xinyi Glass Holdings has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Building industry average of 12% it's much better.

See our latest analysis for Xinyi Glass Holdings

Above you can see how the current ROCE for Xinyi Glass Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Xinyi Glass Holdings for free.

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. The company has employed 50% more capital in the last five years, and the returns on that capital have remained stable at 16%. Since 16% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. 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.

The Bottom Line

In the end, Xinyi Glass Holdings has proven its ability to adequately reinvest capital at good rates of return. In light of this, the stock has only gained 15% over the last five years for shareholders who have owned the stock in this period. So to determine if Xinyi Glass Holdings is a multi-bagger going forward, we'd suggest digging deeper into the company's other fundamentals.

One final note, you should learn about the 3 warning signs we've spotted with Xinyi Glass Holdings (including 1 which is a bit concerning) .

While Xinyi Glass 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.