Sun Hing Printing Holdings (HKG:1975) Could Be Struggling To Allocate Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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. In light of that, when we looked at Sun Hing Printing Holdings (HKG:1975) and its ROCE trend, we weren't exactly thrilled.

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 Sun Hing Printing Holdings, this is the formula:

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

0.043 = HK$25m ÷ (HK$646m - HK$68m) (Based on the trailing twelve months to December 2023).

So, Sun Hing Printing Holdings has an ROCE of 4.3%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 7.2%.

See our latest analysis for Sun Hing Printing Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sun Hing Printing Holdings' 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 Sun Hing Printing Holdings.

So How Is Sun Hing Printing Holdings' ROCE Trending?

In terms of Sun Hing Printing Holdings' historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 9.9% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

Our Take On Sun Hing Printing Holdings' ROCE

We're a bit apprehensive about Sun Hing Printing Holdings because despite more capital being deployed in the business, returns on that capital and sales have both fallen. And, the stock has remained flat over the last five years, so investors don't seem too impressed either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

On a final note, we've found 4 warning signs for Sun Hing Printing Holdings that we think you should be aware of.

While Sun Hing Printing 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.