King Fook Holdings (HKG:280) Is Doing The Right Things To Multiply Its Share Price

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So when we looked at King Fook Holdings (HKG:280) and its trend of ROCE, we really liked what we saw.

What Is 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 King Fook Holdings:

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

0.10 = HK$78m ÷ (HK$917m - HK$148m) (Based on the trailing twelve months to March 2024).

So, King Fook Holdings has an ROCE of 10%. That's a pretty standard return and it's in line with the industry average of 9.6%.

See our latest analysis for King Fook 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 King Fook Holdings has performed in the past in other metrics, you can view this free graph of King Fook Holdings' past earnings, revenue and cash flow.

The Trend Of ROCE

We like the trends that we're seeing from King Fook Holdings. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 10%. The amount of capital employed has increased too, by 21%. So we're very much inspired by what we're seeing at King Fook Holdings thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, King Fook Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And a remarkable 103% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

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

While King Fook 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.