What We Make Of King Fook Holdings' (HKG:280) Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So on that note, King Fook Holdings (HKG:280) looks quite promising in regards to its trends of return on capital.

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. 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)

0.01 = HK$7.3m ÷ (HK$819m - HK$111m) (Based on the trailing twelve months to March 2020).

Therefore, King Fook Holdings has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 11%.

Check out 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 want to delve into the historical earnings, revenue and cash flow of King Fook Holdings, check out these free graphs here.

So How Is King Fook Holdings' ROCE Trending?

King Fook Holdings has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 1.0%, which is always encouraging. While returns have increased, the amount of capital employed by King Fook Holdings has remained flat over the period. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. Because in the end, a business can only get so efficient.

In Conclusion...

To bring it all together, King Fook Holdings has done well to increase the returns it's generating from its capital employed. Astute investors may have an opportunity here because the stock has declined 59% 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 King Fook Holdings, we've discovered 1 warning sign that you should be aware of.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

When trading King Fook Holdings or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

This article by Simply Wall St is general in nature. 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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.