The Return Trends At Keen Ocean International Holding (HKG:8070) Look Promising

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So on that note, Keen Ocean International Holding (HKG:8070) looks quite promising in regards to its trends of return on capital.

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 Keen Ocean International Holding is:

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

0.17 = HK$17m ÷ (HK$210m - HK$112m) (Based on the trailing twelve months to December 2023).

So, Keen Ocean International Holding has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 7.5% it's much better.

View our latest analysis for Keen Ocean International Holding

Historical performance is a great place to start when researching a stock so above you can see the gauge for Keen Ocean International Holding's ROCE against it's prior returns. 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

We're delighted to see that Keen Ocean International Holding is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 17% which is a sight for sore eyes. In addition to that, Keen Ocean International Holding is employing 74% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

Another thing to note, Keen Ocean International Holding has a high ratio of current liabilities to total assets of 53%. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

Long story short, we're delighted to see that Keen Ocean International Holding's reinvestment activities have paid off and the company is now profitable. Astute investors may have an opportunity here because the stock has declined 17% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a separate note, we've found 1 warning sign for Keen Ocean International Holding you'll probably want to know about.

While Keen Ocean International Holding 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.