K & P International Holdings (HKG:675) Is Doing The Right Things To Multiply Its Share Price

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. Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in K & P International Holdings' (HKG:675) 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 K & P International Holdings:

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

0.082 = HK$33m ÷ (HK$497m - HK$99m) (Based on the trailing twelve months to June 2022).

So, K & P International Holdings has an ROCE of 8.2%. In absolute terms, that's a low return but it's around the Electronic industry average of 7.3%.

See our latest analysis for K & P International Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for K & P International Holdings' ROCE against it's prior returns. If you're interested in investigating K & P International Holdings' past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For K & P International Holdings Tell Us?

K & P International Holdings has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 8.2% on its capital. In addition to that, K & P International Holdings is employing 55% more capital than previously which is expected of a company that's trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

On a related note, the company's ratio of current liabilities to total assets has decreased to 20%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Key Takeaway

Long story short, we're delighted to see that K & P International Holdings' reinvestment activities have paid off and the company is now profitable. Given the stock has declined 28% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

If you want to continue researching K & P International Holdings, you might be interested to know about the 3 warning signs that our analysis has discovered.

While K & P International Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.