China ITS (Holdings) (HKG:1900) Might Have The Makings Of A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. 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 China ITS (Holdings)'s (HKG:1900) returns on capital, so let's have a look.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on China ITS (Holdings) is:

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

0.071 = CN¥133m ÷ (CN¥3.0b - CN¥1.1b) (Based on the trailing twelve months to June 2022).

So, China ITS (Holdings) has an ROCE of 7.1%. On its own, that's a low figure but it's around the 6.0% average generated by the IT industry.

See our latest analysis for China ITS (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 China ITS (Holdings), check out these free graphs here.

So How Is China ITS (Holdings)'s ROCE Trending?

You'd find it hard not to be impressed with the ROCE trend at China ITS (Holdings). The figures show that over the last five years, returns on capital have grown by 162%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. In regards to capital employed, China ITS (Holdings) appears to been achieving more with less, since the business is using 20% less capital to run its operation. China ITS (Holdings) may be selling some assets so it's worth investigating if the business has plans for future investments to increase returns further still.

The Bottom Line

From what we've seen above, China ITS (Holdings) has managed to increase it's returns on capital all the while reducing it's capital base. Given the stock has declined 59% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 1 warning sign for China ITS (Holdings) you'll probably want to know about.

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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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.