Returns On Capital At Fu Shou Yuan International Group (HKG:1448) Have Stalled

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. That's why when we briefly looked at Fu Shou Yuan International Group's (HKG:1448) ROCE trend, we were pretty happy with what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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)

0.19 = CN¥1.4b ÷ (CN¥8.7b - CN¥1.3b) (Based on the trailing twelve months to December 2023).

So, Fu Shou Yuan International Group has an ROCE of 19%. On its own, that's a standard return, however it's much better than the 12% 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 analyst report for Fu Shou Yuan International Group .

What The Trend Of ROCE Can Tell Us

While the current returns on capital are decent, they haven't changed much. The company has employed 64% more capital in the last five years, and the returns on that capital have remained stable at 19%. Since 19% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

What We Can Learn From Fu Shou Yuan International Group's ROCE

To sum it up, Fu Shou Yuan International Group has simply been reinvesting capital steadily, at those decent rates of return. Yet over the last five years the stock has declined 20%, 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.

If you're still interested in Fu Shou Yuan International Group it's worth checking out our FREE intrinsic value approximation for 1448 to see if it's trading at an attractive price in other respects.

While Fu Shou Yuan International Group may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.

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