Returns On Capital At Health and Happiness (H&H) International Holdings (HKG:1112) Have Stalled

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of Health and Happiness (H&H) International Holdings (HKG:1112) looks decent, right now, so lets see what the trend of returns can tell us.

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. The formula for this calculation on Health and Happiness (H&H) International Holdings is:

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

0.11 = CN¥1.6b ÷ (CN¥17b - CN¥3.0b) (Based on the trailing twelve months to June 2021).

So, Health and Happiness (H&H) International Holdings has an ROCE of 11%. That's a pretty standard return and it's in line with the industry average of 11%.

View 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, you can check out the forecasts from the analysts covering Health and Happiness (H&H) International Holdings here for free.

What Does the ROCE Trend For Health and Happiness (H&H) International Holdings Tell Us?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. Over the past five years, ROCE has remained relatively flat at around 11% and the business has deployed 40% more capital into its operations. 11% is a pretty standard return, and it provides some comfort knowing that Health and Happiness (H&H) International Holdings 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 Health and Happiness (H&H) International Holdings' ROCE

In the end, Health and Happiness (H&H) International Holdings has proven its ability to adequately reinvest capital at good rates of return. However, over the last five years, the stock hasn't provided much growth to shareholders in the way of total returns. That's why we think it'd be worthwhile to look further into this stock given the fundamentals are appealing.

Health and Happiness (H&H) International Holdings does have some risks, we noticed 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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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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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