Returns on Capital Paint A Bright Future For Kingboard Laminates Holdings (HKG:1888)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Kingboard Laminates Holdings' (HKG:1888) returns on capital, so let's have a look.

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

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 Kingboard Laminates Holdings:

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

0.42 = HK$8.3b ÷ (HK$30b - HK$9.8b) (Based on the trailing twelve months to December 2021).

Therefore, Kingboard Laminates Holdings has an ROCE of 42%. That's a fantastic return and not only that, it outpaces the average of 6.6% earned by companies in a similar industry.

Check out our latest analysis for Kingboard Laminates Holdings

Above you can see how the current ROCE for Kingboard Laminates Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Kingboard Laminates Holdings.

So How Is Kingboard Laminates Holdings' ROCE Trending?

Kingboard Laminates Holdings is displaying some positive trends. Over the last five years, returns on capital employed have risen substantially to 42%. The amount of capital employed has increased too, by 20%. So we're very much inspired by what we're seeing at Kingboard Laminates Holdings thanks to its ability to profitably reinvest capital.

The Bottom Line On Kingboard Laminates Holdings' ROCE

All in all, it's terrific to see that Kingboard Laminates Holdings is reaping the rewards from prior investments and is growing its capital base. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to know some of the risks facing Kingboard Laminates Holdings we've found 2 warning signs (1 is concerning!) that you should be aware of before investing here.

Kingboard Laminates Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.