Parkson Retail Group's (HKG:3368) Returns On Capital Are Heading Higher

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base 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 Parkson Retail Group's (HKG:3368) returns on capital, so let's have a look.

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. To calculate this metric for Parkson Retail Group, this is the formula:

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

0.038 = CN¥388m ÷ (CN¥14b - CN¥3.8b) (Based on the trailing twelve months to March 2021).

Therefore, Parkson Retail Group has an ROCE of 3.8%. Ultimately, that's a low return and it under-performs the Multiline Retail industry average of 5.9%.

See our latest analysis for Parkson Retail Group

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 Parkson Retail Group, check out these free graphs here.

So How Is Parkson Retail Group's ROCE Trending?

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. The figures show that over the last five years, ROCE has grown 297% 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.

What We Can Learn From Parkson Retail Group's ROCE

To sum it up, Parkson Retail Group is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 57% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

One more thing: We've identified 2 warning signs with Parkson Retail Group (at least 1 which is a bit unpleasant) , and understanding these would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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