Returns On Capital Signal Tricky Times Ahead For GHW International (HKG:9933)

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. However, after investigating GHW International (HKG:9933), we don't think it's current trends fit the mold of a multi-bagger.

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Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for GHW International:

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

0.019 = CN¥16m ÷ (CN¥2.1b - CN¥1.2b) (Based on the trailing twelve months to June 2025).

Therefore, GHW International has an ROCE of 1.9%. In absolute terms, that's a low return and it also under-performs the Chemicals industry average of 8.5%.

View our latest analysis for GHW International

Historical performance is a great place to start when researching a stock so above you can see the gauge for GHW International's ROCE against it's prior returns. If you're interested in investigating GHW International's past further, check out this free graph covering GHW International's past earnings, revenue and cash flow.

What Can We Tell From GHW International's ROCE Trend?

Unfortunately, the trend isn't great with ROCE falling from 8.1% five years ago, while capital employed has grown 116%. That being said, GHW International raised some capital prior to their latest results being released, so that could partly explain the increase in capital employed. It's unlikely that all of the funds raised have been put to work yet, so as a consequence GHW International might not have received a full period of earnings contribution from it.

On a separate but related note, it's important to know that GHW International has a current liabilities to total assets ratio of 60%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From GHW International's ROCE

While returns have fallen for GHW International in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And the stock has done incredibly well with a 1,989% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

One more thing: We've identified 3 warning signs with GHW International (at least 2 which are significant) , and understanding these would certainly be useful.

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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.