Bauhaus International (Holdings) (HKG:483) Is Looking To Continue Growing Its Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. With that in mind, we've noticed some promising trends at Bauhaus International (Holdings) (HKG:483) so let's look a bit deeper.

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. Analysts use this formula to calculate it for Bauhaus International (Holdings):

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

0.17 = HK$33m ÷ (HK$246m - HK$53m) (Based on the trailing twelve months to September 2023).

Thus, Bauhaus International (Holdings) has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 10% generated by the Luxury industry.

Check out our latest analysis for Bauhaus International (Holdings)

Historical performance is a great place to start when researching a stock so above you can see the gauge for Bauhaus International (Holdings)'s ROCE against it's prior returns. If you'd like to look at how Bauhaus International (Holdings) has performed in the past in other metrics, you can view this free graph of Bauhaus International (Holdings)'s past earnings, revenue and cash flow.

So How Is Bauhaus International (Holdings)'s ROCE Trending?

We're pretty happy with how the ROCE has been trending at Bauhaus International (Holdings). The data shows that returns on capital have increased by 274% over the trailing five years. The company is now earning HK$0.2 per dollar of capital employed. In regards to capital employed, Bauhaus International (Holdings) appears to been achieving more with less, since the business is using 74% less capital to run its operation. Bauhaus International (Holdings) may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

In Conclusion...

In a nutshell, we're pleased to see that Bauhaus International (Holdings) has been able to generate higher returns from less capital. And a remarkable 128% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 2 warning signs for Bauhaus International (Holdings) you'll probably want to know about.

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.