Returns At Fu Shou Yuan International Group (HKG:1448) Are On The Way Up

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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Fu Shou Yuan International Group's (HKG:1448) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

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. The formula for this calculation on Fu Shou Yuan International Group is:

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

0.16 = CN¥928m ÷ (CN¥6.7b - CN¥936m) (Based on the trailing twelve months to December 2020).

Thus, Fu Shou Yuan International Group has an ROCE of 16%. On its own, that's a standard return, however it's much better than the 7.9% generated by the Consumer Services industry.

See our latest analysis for Fu Shou Yuan International Group

Above you can see how the current ROCE for Fu Shou Yuan International Group compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

What The Trend Of ROCE Can Tell Us

Fu Shou Yuan International Group is displaying some positive trends. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 16%. Basically the business is earning more per dollar of capital invested and in addition to that, 86% more capital is being employed now too. So we're very much inspired by what we're seeing at Fu Shou Yuan International Group thanks to its ability to profitably reinvest capital.

In Conclusion...

All in all, it's terrific to see that Fu Shou Yuan International Group is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a solid 55% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

Fu Shou Yuan International Group does have some risks though, and we've spotted 1 warning sign for Fu Shou Yuan International Group that you might be interested in.

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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