Returns At Uni-President China Holdings (HKG:220) Appear To Be Weighed Down

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Uni-President China Holdings (HKG:220), we don't think it's current trends fit the mold of a multi-bagger.

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. To calculate this metric for Uni-President China Holdings, this is the formula:

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

0.10 = CN¥1.4b ÷ (CN¥22b - CN¥7.9b) (Based on the trailing twelve months to December 2022).

So, Uni-President China Holdings has an ROCE of 10%. By itself that's a normal return on capital and it's in line with the industry's average returns of 9.7%.

Check out our latest analysis for Uni-President China Holdings

Above you can see how the current ROCE for Uni-President China Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for Uni-President China Holdings

So How Is Uni-President China Holdings' ROCE Trending?

There hasn't been much to report for Uni-President China Holdings' returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So unless we see a substantial change at Uni-President China Holdings in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. That being the case, it makes sense that Uni-President China Holdings has been paying out 106% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.

The Key Takeaway

In summary, Uni-President China Holdings isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Additionally, the stock's total return to shareholders over the last five years has been flat, which isn't too surprising. Therefore based on the analysis done in this article, we don't think Uni-President China Holdings has the makings of a multi-bagger.

One more thing, we've spotted 1 warning sign facing Uni-President China Holdings that you might find interesting.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.