Returns On Capital At Fu Shou Yuan International Group (HKG:1448) Have Hit The Brakes

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. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So, when we ran our eye over Fu Shou Yuan International Group's (HKG:1448) trend of ROCE, we liked what we saw.

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

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 Fu Shou Yuan International Group:

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

0.15 = CN¥1.0b ÷ (CN¥7.8b - CN¥1.0b) (Based on the trailing twelve months to December 2022).

Therefore, Fu Shou Yuan International Group has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Consumer Services industry average of 8.3% it's much better.

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'd like to see what analysts are forecasting going forward, you should check out our free report for Fu Shou Yuan International Group.

SWOT Analysis for Fu Shou Yuan International Group

So How Is Fu Shou Yuan International Group's ROCE Trending?

While the returns on capital are good, they haven't moved much. The company has employed 67% more capital in the last five years, and the returns on that capital have remained stable at 15%. Since 15% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Stable returns in this ballpark can be unexciting, but if they can be maintained over the long run, they often provide nice rewards to shareholders.

The Bottom Line On Fu Shou Yuan International Group's ROCE

The main thing to remember is that Fu Shou Yuan International Group has proven its ability to continually reinvest at respectable rates of return. Yet over the last five years the stock has declined 21%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

While Fu Shou Yuan International Group doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation on our platform.

While Fu Shou Yuan International Group 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.