The Return Trends At China-Hongkong Photo Products Holdings (HKG:1123) Look Promising

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's 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. Speaking of which, we noticed some great changes in China-Hongkong Photo Products Holdings' (HKG:1123) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for China-Hongkong Photo Products Holdings:

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

0.04 = HK$29m ÷ (HK$913m - HK$174m) (Based on the trailing twelve months to March 2023).

Therefore, China-Hongkong Photo Products Holdings has an ROCE of 4.0%. Even though it's in line with the industry average of 4.2%, it's still a low return by itself.

See our latest analysis for China-Hongkong Photo Products Holdings

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how China-Hongkong Photo Products Holdings has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. The figures show that over the last five years, ROCE has grown 721% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

In Conclusion...

As discussed above, China-Hongkong Photo Products Holdings appears to be getting more proficient at generating returns since capital employed has remained flat but earnings (before interest and tax) are up. Astute investors may have an opportunity here because the stock has declined 55% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know about the risks facing China-Hongkong Photo Products Holdings, we've discovered 3 warning signs that you should be aware of.

While China-Hongkong Photo Products Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.