SiS Mobile Holdings (HKG:1362) Knows How To Allocate Capital Effectively

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. With that in mind, the ROCE of SiS Mobile Holdings (HKG:1362) looks great, so lets see what the trend can tell us.

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

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. Analysts use this formula to calculate it for SiS Mobile Holdings:

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

0.28 = HK$40m ÷ (HK$204m - HK$58m) (Based on the trailing twelve months to June 2022).

Therefore, SiS Mobile Holdings has an ROCE of 28%. That's a fantastic return and not only that, it outpaces the average of 6.7% earned by companies in a similar industry.

See our latest analysis for SiS Mobile Holdings

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

What Does the ROCE Trend For SiS Mobile Holdings Tell Us?

We like the trends that we're seeing from SiS Mobile Holdings. Over the last five years, returns on capital employed have risen substantially to 28%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 44%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From SiS Mobile Holdings' ROCE

All in all, it's terrific to see that SiS Mobile Holdings is reaping the rewards from prior investments and is growing its capital base. Although the company may be facing some issues elsewhere since the stock has plunged 82% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

On a final note, we've found 1 warning sign for SiS Mobile Holdings that we think you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets 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.