Returns At SiS International Holdings (HKG:529) Are On The Way Up

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. 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 SiS International Holdings' (HKG:529) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on SiS International Holdings is:

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

0.05 = HK$268m ÷ (HK$9.1b - HK$3.8b) (Based on the trailing twelve months to December 2020).

Thus, SiS International Holdings has an ROCE of 5.0%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 8.7%.

View our latest analysis for SiS International 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're interested in investigating SiS International Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

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

While in absolute terms it isn't a high ROCE, it's promising to see that it has been moving in the right direction. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 5.0%. 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 64%. So we're very much inspired by what we're seeing at SiS International Holdings thanks to its ability to profitably reinvest capital.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. The current liabilities has increased to 41% of total assets, so the business is now more funded by the likes of its suppliers or short-term creditors. And with current liabilities at those levels, that's pretty high.

In Conclusion...

All in all, it's terrific to see that SiS International Holdings is reaping the rewards from prior investments and is growing its capital base. And since the stock has fallen 61% over the last five years, there might be an opportunity here. So researching this company further and determining whether or not these trends will continue seems justified.

SiS International Holdings does come with some risks though, we found 3 warning signs in our investment analysis, and 2 of those don't sit too well with us...

While SiS International Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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