Returns On Capital Are A Standout For Kwan Yong Holdings (HKG:9998)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So when we looked at the ROCE trend of Kwan Yong Holdings (HKG:9998) we really liked what we saw.

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What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for Kwan Yong Holdings, this is the formula:

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

0.24 = S$13m ÷ (S$175m - S$121m) (Based on the trailing twelve months to June 2025).

Therefore, Kwan Yong Holdings has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 5.1% earned by companies in a similar industry.

View our latest analysis for Kwan Yong Holdings

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

What Does the ROCE Trend For Kwan Yong Holdings Tell Us?

Shareholders will be relieved that Kwan Yong Holdings has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 24%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Essentially the business now has suppliers or short-term creditors funding about 69% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

What We Can Learn From Kwan Yong Holdings' ROCE

As discussed above, Kwan Yong Holdings appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. And with a respectable 89% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if Kwan Yong Holdings can keep these trends up, it could have a bright future ahead.

One final note, you should learn about the 2 warning signs we've spotted with Kwan Yong Holdings (including 1 which makes us a bit uncomfortable) .

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.