Returns At Chow Sang Sang Holdings International (HKG:116) Appear To Be Weighed Down

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Having said that, from a first glance at Chow Sang Sang Holdings International (HKG:116) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Return On Capital Employed (ROCE): What Is It?

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. Analysts use this formula to calculate it for Chow Sang Sang Holdings International:

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

0.072 = HK$986m ÷ (HK$18b - HK$4.2b) (Based on the trailing twelve months to June 2022).

Therefore, Chow Sang Sang Holdings International has an ROCE of 7.2%. In absolute terms, that's a low return and it also under-performs the Luxury industry average of 11%.

See our latest analysis for Chow Sang Sang Holdings International

In the above chart we have measured Chow Sang Sang Holdings International'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 Chow Sang Sang Holdings International.

So How Is Chow Sang Sang Holdings International's ROCE Trending?

There are better returns on capital out there than what we're seeing at Chow Sang Sang Holdings International. The company has consistently earned 7.2% for the last five years, and the capital employed within the business has risen 34% in that time. This poor ROCE doesn't inspire confidence right now, and with the increase in capital employed, it's evident that the business isn't deploying the funds into high return investments.

The Bottom Line On Chow Sang Sang Holdings International's ROCE

Long story short, while Chow Sang Sang Holdings International has been reinvesting its capital, the returns that it's generating haven't increased. And in the last five years, the stock has given away 22% so the market doesn't look too hopeful on these trends strengthening any time soon. 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.

One more thing, we've spotted 2 warning signs facing Chow Sang Sang Holdings International that you might find interesting.

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.

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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.