Chow Sang Sang Holdings International (HKG:116) Will Be Hoping To Turn Its Returns On Capital Around

When we're researching a company, it's sometimes hard to find the warning signs, but there are some financial metrics that can help spot trouble early. Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. Having said that, after a brief look, Chow Sang Sang Holdings International (HKG:116) we aren't filled with optimism, but let's investigate further.

We've discovered 1 warning sign about Chow Sang Sang Holdings International. View them for free.

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. The formula for this calculation on Chow Sang Sang Holdings International is:

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

0.075 = HK$1.0b ÷ (HK$20b - HK$6.1b) (Based on the trailing twelve months to December 2024).

So, Chow Sang Sang Holdings International has an ROCE of 7.5%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 13%.

See our latest analysis for Chow Sang Sang Holdings International

Above you can see how the current ROCE for Chow Sang Sang Holdings International 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 Chow Sang Sang Holdings International for free.

What The Trend Of ROCE Can Tell Us

There is reason to be cautious about Chow Sang Sang Holdings International, given the returns are trending downwards. About five years ago, returns on capital were 11%, however they're now substantially lower than that as we saw above. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Chow Sang Sang Holdings International to turn into a multi-bagger.

In Conclusion...

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. In spite of that, the stock has delivered a 23% return to shareholders who held over the last five years. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

Chow Sang Sang Holdings International does have some risks though, and we've spotted 1 warning sign for Chow Sang Sang Holdings International that you might be interested in.

While Chow Sang Sang Holdings International 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.