Stock Analysis

Sino-Ocean Service Holding (HKG:6677) Is Doing The Right Things To Multiply Its Share Price

SEHK:6677
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Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Sino-Ocean Service Holding's (HKG:6677) returns on capital, so let's have a look.

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. The formula for this calculation on Sino-Ocean Service Holding is:

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

0.19 = CN¥513m ÷ (CN¥4.2b - CN¥1.6b) (Based on the trailing twelve months to June 2022).

So, Sino-Ocean Service Holding has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 8.2% generated by the Commercial Services industry.

Check out our latest analysis for Sino-Ocean Service Holding

roce
SEHK:6677 Return on Capital Employed March 10th 2023

In the above chart we have measured Sino-Ocean Service Holding's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Sino-Ocean Service Holding.

What Does the ROCE Trend For Sino-Ocean Service Holding Tell Us?

Sino-Ocean Service Holding is displaying some positive trends. The numbers show that in the last four years, the returns generated on capital employed have grown considerably to 19%. The amount of capital employed has increased too, by 58%. So we're very much inspired by what we're seeing at Sino-Ocean Service Holding thanks to its ability to profitably reinvest capital.

What We Can Learn From Sino-Ocean Service Holding's ROCE

In summary, it's great to see that Sino-Ocean Service Holding can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And since the stock has fallen 32% over the last year, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we've found 1 warning sign for Sino-Ocean Service Holding that we think you should be aware of.

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.

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.