Investors Met With Slowing Returns on Capital At China Kepei Education Group (HKG:1890)

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. So, when we ran our eye over China Kepei Education Group's (HKG:1890) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What is it?

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. To calculate this metric for China Kepei Education Group, this is the formula:

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

0.15 = CN¥587m ÷ (CN¥6.4b - CN¥2.4b) (Based on the trailing twelve months to June 2021).

Therefore, China Kepei Education Group has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Consumer Services industry average of 7.8% it's much better.

Check out our latest analysis for China Kepei Education Group

Above you can see how the current ROCE for China Kepei Education 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.

How Are Returns Trending?

While the current returns on capital are decent, they haven't changed much. The company has consistently earned 15% for the last five years, and the capital employed within the business has risen 288% in that time. 15% is a pretty standard return, and it provides some comfort knowing that China Kepei Education Group has consistently earned this amount. 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.

Our Take On China Kepei Education Group's ROCE

The main thing to remember is that China Kepei Education Group has proven its ability to continually reinvest at respectable rates of return. Yet over the last year the stock has declined 17%, so the decline might provide an opening. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

On a final note, we've found 2 warning signs for China Kepei Education Group that we think you should be aware of.

While China Kepei Education 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.

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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