Returns At Sino Golf Holdings (HKG:361) Are On The Way Up

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Sino Golf Holdings' (HKG:361) returns on capital, so let's have a look.

What Is 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. Analysts use this formula to calculate it for Sino Golf Holdings:

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

0.064 = HK$19m ÷ (HK$447m - HK$148m) (Based on the trailing twelve months to June 2023).

Thus, Sino Golf Holdings has an ROCE of 6.4%. On its own that's a low return on capital but it's in line with the industry's average returns of 6.1%.

View our latest analysis for Sino Golf Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Sino Golf Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Sino Golf Holdings.

What Does the ROCE Trend For Sino Golf Holdings Tell Us?

It's great to see that Sino Golf Holdings has started to generate some pre-tax earnings from prior investments. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 6.4% on their capital employed. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 21%. Sino Golf Holdings could be selling under-performing assets since the ROCE is improving.

What We Can Learn From Sino Golf Holdings' ROCE

In the end, Sino Golf Holdings has proven it's capital allocation skills are good with those higher returns from less amount of capital. Although the company may be facing some issues elsewhere since the stock has plunged 82% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

One final note, you should learn about the 2 warning signs we've spotted with Sino Golf Holdings (including 1 which is a bit concerning) .

While Sino Golf Holdings 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.