Stock Analysis

F8 Enterprises (Holdings) Group (HKG:8347) Will Be Hoping To Turn Its Returns On Capital Around

  •  Updated
Source: Shutterstock

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. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at F8 Enterprises (Holdings) Group (HKG:8347) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

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 F8 Enterprises (Holdings) Group:

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

0.052 = HK$6.9m ÷ (HK$215m - HK$82m) (Based on the trailing twelve months to June 2021).

So, F8 Enterprises (Holdings) Group has an ROCE of 5.2%. Ultimately, that's a low return and it under-performs the Oil and Gas industry average of 8.2%.

See our latest analysis for F8 Enterprises (Holdings) Group

SEHK:8347 Return on Capital Employed September 28th 2021

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, revenue and cash flow of F8 Enterprises (Holdings) Group, check out these free graphs here.

How Are Returns Trending?

In terms of F8 Enterprises (Holdings) Group's historical ROCE movements, the trend isn't fantastic. To be more specific, ROCE has fallen from 58% over the last five years. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It's worth keeping an eye on the company's earnings from here on to see if these investments do end up contributing to the bottom line.

The Bottom Line

To conclude, we've found that F8 Enterprises (Holdings) Group is reinvesting in the business, but returns have been falling. And investors may be expecting the fundamentals to get a lot worse because the stock has crashed 86% over the last three years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One more thing: We've identified 5 warning signs with F8 Enterprises (Holdings) Group (at least 1 which is a bit concerning) , and understanding these would certainly be useful.

While F8 Enterprises (Holdings) 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.

Valuation is complex, but we're helping make it simple.

Find out whether F8 Enterprises (Holdings) Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis