Returns On Capital At Sun Hing Printing Holdings (HKG:1975) Have Hit The Brakes

What are the early trends we should look for to identify a stock that could 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So, when we ran our eye over Sun Hing Printing Holdings' (HKG:1975) trend of ROCE, we liked what we saw.

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. Analysts use this formula to calculate it for Sun Hing Printing Holdings:

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

0.17 = HK$58m ÷ (HK$422m - HK$78m) (Based on the trailing twelve months to December 2020).

So, Sun Hing Printing Holdings has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 9.3% it's much better.

View our latest analysis for Sun Hing Printing Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Sun Hing Printing Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Sun Hing Printing 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 17% and the business has deployed 76% more capital into its operations. 17% is a pretty standard return, and it provides some comfort knowing that Sun Hing Printing Holdings has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

In Conclusion...

In the end, Sun Hing Printing Holdings has proven its ability to adequately reinvest capital at good rates of return. Yet over the last three years the stock has declined 12%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

One more thing, we've spotted 3 warning signs facing Sun Hing Printing Holdings that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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This article by Simply Wall St is general in nature. 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.
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