Stock Analysis

Returns On Capital Are Showing Encouraging Signs At Sino-Ocean Service Holding (HKG:6677)

SEHK:6677
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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. 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 looked at Sino-Ocean Service Holding (HKG:6677) and its trend of ROCE, we really 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 Sino-Ocean Service Holding:

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

0.19 = CN¥509m ÷ (CN¥4.2b - CN¥1.6b) (Based on the trailing twelve months to June 2022).

Thus, Sino-Ocean Service Holding has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 8.1% generated by the Commercial Services industry.

Check out our latest analysis for Sino-Ocean Service Holding

roce
SEHK:6677 Return on Capital Employed September 23rd 2022

Above you can see how the current ROCE for Sino-Ocean Service Holding 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 Sino-Ocean Service Holding here for free.

The Trend Of ROCE

The trends we've noticed at Sino-Ocean Service Holding are quite reassuring. The data shows that returns on capital have increased substantially over the last four years to 19%. Basically the business is earning more per dollar of capital invested and in addition to that, 57% more capital is being employed now too. So we're very much inspired by what we're seeing at Sino-Ocean Service Holding thanks to its ability to profitably reinvest capital.

The Bottom Line On Sino-Ocean Service Holding's ROCE

A company that is growing its returns on capital and can consistently reinvest in itself is a highly sought after trait, and that's what Sino-Ocean Service Holding has. Given the stock has declined 53% in the last year, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a separate note, we've found 1 warning sign for Sino-Ocean Service Holding you'll probably want to know about.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Valuation is complex, but we're helping make it simple.

Find out whether Sino-Ocean Service Holding is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.