Returns On Capital Are Showing Encouraging Signs At Regina Miracle International (Holdings) (HKG:2199)

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Regina Miracle International (Holdings) (HKG:2199) looks quite promising in regards to its trends of return on capital.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Regina Miracle International (Holdings), this is the formula:

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

0.11 = HK$820m ÷ (HK$9.4b - HK$2.2b) (Based on the trailing twelve months to March 2022).

Thus, Regina Miracle International (Holdings) has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 9.4% it's much better.

Check out the opportunities and risks within the HK Luxury industry.

Above you can see how the current ROCE for Regina Miracle International (Holdings) compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Regina Miracle International (Holdings).

What Can We Tell From Regina Miracle International (Holdings)'s ROCE Trend?

We like the trends that we're seeing from Regina Miracle International (Holdings). The data shows that returns on capital have increased substantially over the last five years to 11%. The amount of capital employed has increased too, by 122%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

On a related note, the company's ratio of current liabilities to total assets has decreased to 24%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

Our Take On Regina Miracle International (Holdings)'s ROCE

All in all, it's terrific to see that Regina Miracle International (Holdings) is reaping the rewards from prior investments and is growing its capital base. Given the stock has declined 47% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we've found 2 warning signs for Regina Miracle International (Holdings) that we think you should be aware of.

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.