Winson Holdings Hong Kong (HKG:6812) Will Be Hoping To Turn Its Returns On Capital Around

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. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. However, after investigating Winson Holdings Hong Kong (HKG:6812), we don't think it's current trends fit the mold of a multi-bagger.

Understanding 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. To calculate this metric for Winson Holdings Hong Kong, this is the formula:

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

0.045 = HK$10m ÷ (HK$282m - HK$55m) (Based on the trailing twelve months to March 2024).

Thus, Winson Holdings Hong Kong has an ROCE of 4.5%. In absolute terms, that's a low return and it also under-performs the Commercial Services industry average of 7.0%.

See our latest analysis for Winson Holdings Hong Kong

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 Winson Holdings Hong Kong has performed in the past in other metrics, you can view this free graph of Winson Holdings Hong Kong's past earnings, revenue and cash flow.

What Can We Tell From Winson Holdings Hong Kong's ROCE Trend?

When we looked at the ROCE trend at Winson Holdings Hong Kong, we didn't gain much confidence. Over the last five years, returns on capital have decreased to 4.5% from 19% five years ago. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line On Winson Holdings Hong Kong's ROCE

To conclude, we've found that Winson Holdings Hong Kong is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 37% in the last five years. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, we think you'd have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 5 warning signs for Winson Holdings Hong Kong (of which 2 are potentially serious!) that you should know about.

While Winson Holdings Hong Kong 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.