Bosideng International Holdings (HKG:3998) Is Looking To Continue Growing Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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 when we looked at Bosideng International Holdings (HKG:3998) and its trend of ROCE, we really liked what we saw.

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

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 Bosideng International Holdings, this is the formula:

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

0.18 = CN¥2.6b ÷ (CN¥21b - CN¥6.6b) (Based on the trailing twelve months to March 2022).

Thus, Bosideng International Holdings has an ROCE of 18%. In absolute terms, that's a satisfactory return, but compared to the Luxury industry average of 10% it's much better.

Check out our latest analysis for Bosideng International Holdings

In the above chart we have measured Bosideng International Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Bosideng International Holdings here for free.

What Does the ROCE Trend For Bosideng International Holdings Tell Us?

Bosideng International Holdings is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 18%. The amount of capital employed has increased too, by 51%. So we're very much inspired by what we're seeing at Bosideng International Holdings thanks to its ability to profitably reinvest capital.

Our Take On Bosideng International Holdings' ROCE

In summary, it's great to see that Bosideng International Holdings can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. And a remarkable 726% total return over the last five years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Bosideng International Holdings can keep these trends up, it could have a bright future ahead.

One more thing to note, we've identified 1 warning sign with Bosideng International Holdings and understanding this should be part of your investment process.

While Bosideng International 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.