Health and Happiness (H&H) International Holdings' (HKG:1112) Returns On Capital Are Heading Higher

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Health and Happiness (H&H) International Holdings (HKG:1112) looks quite promising in regards to its trends of return on capital.

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 Health and Happiness (H&H) International Holdings:

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

0.13 = CN¥1.7b ÷ (CN¥17b - CN¥3.3b) (Based on the trailing twelve months to December 2020).

Therefore, Health and Happiness (H&H) International Holdings has an ROCE of 13%. That's a pretty standard return and it's in line with the industry average of 13%.

See our latest analysis for Health and Happiness (H&H) International Holdings

Above you can see how the current ROCE for Health and Happiness (H&H) International Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Health and Happiness (H&H) International Holdings.

So How Is Health and Happiness (H&H) International Holdings' ROCE Trending?

We like the trends that we're seeing from Health and Happiness (H&H) International Holdings. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 13%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 93%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 19%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So this improvement in ROCE has come from the business' underlying economics, which is great to see.

In Conclusion...

All in all, it's terrific to see that Health and Happiness (H&H) International Holdings is reaping the rewards from prior investments and is growing its capital base. Considering the stock has delivered 26% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

One more thing, we've spotted 2 warning signs facing Health and Happiness (H&H) International Holdings that you might find interesting.

While Health and Happiness (H&H) International 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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