There Are Reasons To Feel Uneasy About China Resources Building Materials Technology Holdings' (HKG:1313) Returns On Capital

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. However, after investigating China Resources Building Materials Technology Holdings (HKG:1313), we don't think it's current trends fit the mold of a multi-bagger.

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on China Resources Building Materials Technology Holdings is:

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

0.015 = CN¥934m ÷ (CN¥73b - CN¥11b) (Based on the trailing twelve months to December 2023).

Therefore, China Resources Building Materials Technology Holdings has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Basic Materials industry average of 4.0%.

See our latest analysis for China Resources Building Materials Technology Holdings

Above you can see how the current ROCE for China Resources Building Materials Technology 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 analyst report for China Resources Building Materials Technology Holdings .

So How Is China Resources Building Materials Technology Holdings' ROCE Trending?

When we looked at the ROCE trend at China Resources Building Materials Technology Holdings, we didn't gain much confidence. To be more specific, ROCE has fallen from 24% over the last five years. And considering revenue has dropped while employing more capital, we'd be cautious. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.

The Key Takeaway

From the above analysis, we find it rather worrisome that returns on capital and sales for China Resources Building Materials Technology Holdings have fallen, meanwhile the business is employing more capital than it was five years ago. This could explain why the stock has sunk a total of 82% in the last five years. That being the case, unless the underlying trends revert to a more positive trajectory, we'd consider looking elsewhere.

If you want to continue researching China Resources Building Materials Technology Holdings, you might be interested to know about the 3 warning signs that our analysis has discovered.

While China Resources Building Materials Technology 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.