Under The Bonnet, Fire Rock Holdings' (HKG:1909) Returns Look Impressive

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. 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. Speaking of which, we noticed some great changes in Fire Rock Holdings' (HKG:1909) returns on capital, so let's have a look.

What is Return On Capital Employed (ROCE)?

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. To calculate this metric for Fire Rock Holdings, this is the formula:

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

0.34 = HK$570m ÷ (HK$1.9b - HK$274m) (Based on the trailing twelve months to June 2021).

So, Fire Rock Holdings has an ROCE of 34%. In absolute terms that's a great return and it's even better than the Entertainment industry average of 10%.

See our latest analysis for Fire Rock Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Fire Rock Holdings' ROCE against it's prior returns. If you want to delve into the historical earnings, revenue and cash flow of Fire Rock Holdings, check out these free graphs here.

What Does the ROCE Trend For Fire Rock Holdings Tell Us?

The trends we've noticed at Fire Rock Holdings are quite reassuring. Over the last five years, returns on capital employed have risen substantially to 34%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 1,724%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

Our Take On Fire Rock Holdings' ROCE

All in all, it's terrific to see that Fire Rock Holdings is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 451% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if Fire Rock Holdings can keep these trends up, it could have a bright future ahead.

Like most companies, Fire Rock Holdings does come with some risks, and we've found 2 warning signs that you should be aware of.

Fire Rock Holdings 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.