The Returns At Sino-Ocean Service Holding (HKG:6677) Aren't Growing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Sino-Ocean Service Holding (HKG:6677) and its ROCE trend, we weren't exactly thrilled.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Sino-Ocean Service Holding, this is the formula:

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

0.088 = CN¥203m ÷ (CN¥4.3b - CN¥1.9b) (Based on the trailing twelve months to June 2023).

Therefore, Sino-Ocean Service Holding has an ROCE of 8.8%. In absolute terms, that's a low return but it's around the Commercial Services industry average of 8.2%.

View our latest analysis for Sino-Ocean Service Holding

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.

What The Trend Of ROCE Can Tell Us

There are better returns on capital out there than what we're seeing at Sino-Ocean Service Holding. Over the past five years, ROCE has remained relatively flat at around 8.8% and the business has deployed 37% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

On a separate but related note, it's important to know that Sino-Ocean Service Holding has a current liabilities to total assets ratio of 46%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Sino-Ocean Service Holding's ROCE

In summary, Sino-Ocean Service Holding has simply been reinvesting capital and generating the same low rate of return as before. Since the stock has declined 50% over the last year, investors may not be too optimistic on this trend improving either. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One more thing, we've spotted 1 warning sign facing Sino-Ocean Service Holding 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. 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.