Under The Bonnet, IRC's (HKG:1029) Returns Look Impressive

There are a few key trends to look for if we want to identify the next multi-bagger. 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of IRC (HKG:1029) looks great, so lets see what the trend can tell us.

What is Return On Capital Employed (ROCE)?

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 IRC, this is the formula:

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

0.21 = US$140m ÷ (US$762m - US$97m) (Based on the trailing twelve months to June 2021).

Thus, IRC has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Metals and Mining industry average of 13%.

View our latest analysis for IRC

Above you can see how the current ROCE for IRC 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 IRC.

The Trend Of ROCE

IRC is displaying some positive trends. The data shows that returns on capital have increased substantially over the last five years to 21%. The amount of capital employed has increased too, by 105%. So we're very much inspired by what we're seeing at IRC thanks to its ability to profitably reinvest capital.

Our Take On IRC's ROCE

In summary, it's great to see that IRC can compound returns by consistently reinvesting capital at increasing rates of return, because these are some of the key ingredients of those highly sought after multi-baggers. Astute investors may have an opportunity here because the stock has declined 46% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

Like most companies, IRC does come with some risks, and we've found 1 warning sign that you should be aware of.

IRC is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.