Be Wary Of Shenghui Cleanness Group Holdings (HKG:2521) And Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. 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. 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 Shenghui Cleanness Group Holdings (HKG:2521) and its ROCE trend, we weren't exactly thrilled.

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

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 Shenghui Cleanness Group Holdings:

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

0.049 = CN¥22m ÷ (CN¥636m - CN¥176m) (Based on the trailing twelve months to June 2025).

Therefore, Shenghui Cleanness Group Holdings has an ROCE of 4.9%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 7.1%.

View our latest analysis for Shenghui Cleanness Group 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 Shenghui Cleanness Group Holdings has performed in the past in other metrics, you can view this free graph of Shenghui Cleanness Group Holdings' past earnings, revenue and cash flow.

What Does the ROCE Trend For Shenghui Cleanness Group Holdings Tell Us?

Unfortunately, the trend isn't great with ROCE falling from 31% four years ago, while capital employed has grown 209%. Usually this isn't ideal, but given Shenghui Cleanness Group Holdings conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. Shenghui Cleanness Group Holdings probably hasn't received a full year of earnings yet from the new funds it raised, so these figures should be taken with a grain of salt.

On a related note, Shenghui Cleanness Group Holdings has decreased its current liabilities to 28% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

Our Take On Shenghui Cleanness Group Holdings' ROCE

Bringing it all together, while we're somewhat encouraged by Shenghui Cleanness Group Holdings' reinvestment in its own business, we're aware that returns are shrinking. Since the stock has gained an impressive 58% over the last year, investors must think there's better things to come. However, unless these underlying trends turn more positive, we wouldn't get our hopes up too high.

On a final note, we found 3 warning signs for Shenghui Cleanness Group Holdings (1 is potentially serious) you should be aware of.

While Shenghui Cleanness Group Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.