Oriental Press Group (HKG:18) Shareholders Will Want The ROCE Trajectory To Continue

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. So when we looked at Oriental Press Group (HKG:18) and its trend of ROCE, we really liked what we saw.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Oriental Press Group is:

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

0.044 = HK$89m ÷ (HK$2.1b - HK$75m) (Based on the trailing twelve months to March 2021).

Thus, Oriental Press Group has an ROCE of 4.4%. In absolute terms, that's a low return and it also under-performs the Media industry average of 6.9%.

View our latest analysis for Oriental Press Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Oriental Press Group's ROCE against it's prior returns. If you'd like to look at how Oriental Press Group has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Oriental Press Group's ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The figures show that over the last five years, returns on capital have grown by 201%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 26% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Bottom Line

In the end, Oriental Press Group has proven it's capital allocation skills are good with those higher returns from less amount of capital. Since the stock has returned a solid 93% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. Therefore, we think it would be worth your time to check if these trends are going to continue.

One more thing: We've identified 4 warning signs with Oriental Press Group (at least 1 which can't be ignored) , and understanding these would certainly be useful.

While Oriental Press Group 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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