Investors Could Be Concerned With Chinese People Holdings' (HKG:681) Returns On Capital

What financial metrics can indicate to us that a company is maturing or even in decline? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This indicates to us that the business is not only shrinking the size of its net assets, but its returns are falling as well. So after glancing at the trends within Chinese People Holdings (HKG:681), we weren't too hopeful.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Chinese People Holdings, this is the formula:

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

0.016 = CN¥45m ÷ (CN¥3.4b - CN¥527m) (Based on the trailing twelve months to June 2025).

Thus, Chinese People Holdings has an ROCE of 1.6%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 5.7%.

View our latest analysis for Chinese People Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Chinese People Holdings' ROCE against it's prior returns. If you'd like to look at how Chinese People Holdings has performed in the past in other metrics, you can view this free graph of Chinese People Holdings' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

There is reason to be cautious about Chinese People Holdings, given the returns are trending downwards. To be more specific, the ROCE was 4.1% five years ago, but since then it has dropped noticeably. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect Chinese People Holdings to turn into a multi-bagger.

The Bottom Line On Chinese People Holdings' ROCE

In summary, it's unfortunate that Chinese People Holdings is generating lower returns from the same amount of capital. Long term shareholders who've owned the stock over the last five years have experienced a 40% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Chinese People Holdings does have some risks, we noticed 3 warning signs (and 1 which is a bit unpleasant) we think you should know about.

While Chinese People 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.