Returns On Capital At K2 F&B Holdings (HKG:2108) Have Hit The Brakes

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. In light of that, when we looked at K2 F&B Holdings (HKG:2108) and its ROCE trend, we weren't exactly thrilled.

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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 K2 F&B Holdings, this is the formula:

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

0.023 = S$4.0m ÷ (S$198m - S$20m) (Based on the trailing twelve months to June 2025).

Therefore, K2 F&B Holdings has an ROCE of 2.3%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 8.7%.

View our latest analysis for K2 F&B Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of K2 F&B Holdings.

What The Trend Of ROCE Can Tell Us

The returns on capital haven't changed much for K2 F&B Holdings in recent years. Over the past five years, ROCE has remained relatively flat at around 2.3% and the business has deployed 31% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

In Conclusion...

Long story short, while K2 F&B Holdings has been reinvesting its capital, the returns that it's generating haven't increased. Unsurprisingly, the stock has only gained 24% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

K2 F&B Holdings does have some risks, we noticed 5 warning signs (and 1 which can't be ignored) we think you should know about.

While K2 F&B Holdings 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.