Forward Fashion (International) Holdings (HKG:2528) Is Looking To Continue Growing Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Forward Fashion (International) Holdings' (HKG:2528) returns on capital, so let's have a look.

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

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 Forward Fashion (International) Holdings:

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

0.0059 = HK$2.4m ÷ (HK$719m - HK$310m) (Based on the trailing twelve months to June 2025).

Thus, Forward Fashion (International) Holdings has an ROCE of 0.6%. In absolute terms, that's a low return and it also under-performs the Specialty Retail industry average of 8.0%.

See our latest analysis for Forward Fashion (International) Holdings

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

What Can We Tell From Forward Fashion (International) Holdings' ROCE Trend?

It's great to see that Forward Fashion (International) Holdings has started to generate some pre-tax earnings from prior investments. The company was generating losses five years ago, but now it's turned around, earning 0.6% which is no doubt a relief for some early shareholders. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 37%. Forward Fashion (International) Holdings could be selling under-performing assets since the ROCE is improving.

On a separate but related note, it's important to know that Forward Fashion (International) Holdings has a current liabilities to total assets ratio of 43%, which we'd consider pretty high. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

Our Take On Forward Fashion (International) Holdings' ROCE

In the end, Forward Fashion (International) Holdings has proven it's capital allocation skills are good with those higher returns from less amount of capital. Although the company may be facing some issues elsewhere since the stock has plunged 82% in the last five years. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

Forward Fashion (International) Holdings does have some risks though, and we've spotted 1 warning sign for Forward Fashion (International) Holdings that you might be interested in.

While Forward Fashion (International) 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.