Shareholders Would Enjoy A Repeat Of Keen Ocean International Holding's (HKG:8070) Recent Growth In Returns

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So when we looked at the ROCE trend of Keen Ocean International Holding (HKG:8070) we really liked what we saw.

Our free stock report includes 1 warning sign investors should be aware of before investing in Keen Ocean International Holding. Read for free now.

Understanding Return On Capital Employed (ROCE)

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. To calculate this metric for Keen Ocean International Holding, this is the formula:

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

0.23 = HK$19m ÷ (HK$218m - HK$133m) (Based on the trailing twelve months to December 2024).

Therefore, Keen Ocean International Holding has an ROCE of 23%. In absolute terms that's a great return and it's even better than the Electronic industry average of 6.4%.

See our latest analysis for Keen Ocean International Holding

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'd like to look at how Keen Ocean International Holding has performed in the past in other metrics, you can view this free graph of Keen Ocean International Holding's past earnings, revenue and cash flow.

The Trend Of ROCE

Keen Ocean International Holding has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 23% on its capital. Not only that, but the company is utilizing 62% more capital than before, but that's to be expected from a company 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.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Essentially the business now has suppliers or short-term creditors funding about 61% of its operations, which isn't ideal. And with current liabilities at those levels, that's pretty high.

The Bottom Line On Keen Ocean International Holding's ROCE

To the delight of most shareholders, Keen Ocean International Holding has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, Keen Ocean International Holding does come with some risks, and we've found 1 warning sign that you should be aware of.

Keen Ocean International Holding 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.