The Returns At Chow Sang Sang Holdings International (HKG:116) Aren't Growing

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. In light of that, when we looked at Chow Sang Sang Holdings International (HKG:116) and its ROCE trend, we weren't exactly thrilled.

What is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.092 = HK$1.3b ÷ (HK$17b - HK$3.3b) (Based on the trailing twelve months to June 2021).

Thus, Chow Sang Sang Holdings International has an ROCE of 9.2%. In absolute terms, that's a low return, but it's much better than the Luxury industry average of 7.6%.

View 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 here for free.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for Chow Sang Sang Holdings International in recent years. Over the past five years, ROCE has remained relatively flat at around 9.2% and the business has deployed 46% 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.

Our Take On Chow Sang Sang Holdings International's ROCE

As we've seen above, Chow Sang Sang Holdings International's returns on capital haven't increased but it is reinvesting in the business. Since the stock has declined 28% over the last five years, investors may not be too optimistic on this trend improving either. 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 1 warning sign facing Chow Sang Sang Holdings International 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.