Returns Are Gaining Momentum At China Investments Holdings (HKG:132)

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in China Investments Holdings' (HKG:132) returns on capital, so let's have a look.

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

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for China Investments Holdings:

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

0.026 = HK$184m ÷ (HK$9.6b - HK$2.4b) (Based on the trailing twelve months to June 2023).

Therefore, China Investments Holdings has an ROCE of 2.6%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 4.3%.

See our latest analysis for China Investments Holdings

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

How Are Returns Trending?

The fact that China Investments Holdings is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 2.6% which is a sight for sore eyes. Not only that, but the company is utilizing 318% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On China Investments Holdings' ROCE

Overall, China Investments Holdings gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And since the stock has fallen 68% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for China Investments Holdings (of which 3 can't be ignored!) that you should know about.

While China Investments 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.