Slowing Rates Of Return At Courage Investment Group (HKG:1145) Leave Little Room For Excitement

What are the early trends we should look for to identify a stock that could multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. In light of that, when we looked at Courage Investment Group (HKG:1145) and its ROCE trend, we weren't exactly thrilled.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Courage Investment Group:

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

0.013 = US$730k ÷ (US$59m - US$1.9m) (Based on the trailing twelve months to December 2023).

So, Courage Investment Group has an ROCE of 1.3%. Ultimately, that's a low return and it under-performs the Shipping industry average of 6.9%.

Check out our latest analysis for Courage Investment Group

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 Courage Investment Group's past further, check out this free graph covering Courage Investment Group's past earnings, revenue and cash flow.

So How Is Courage Investment Group's ROCE Trending?

There hasn't been much to report for Courage Investment Group's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. With that in mind, unless investment picks up again in the future, we wouldn't expect Courage Investment Group to be a multi-bagger going forward.

On a side note, Courage Investment Group has done well to reduce current liabilities to 3.3% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

Our Take On Courage Investment Group's ROCE

We can conclude that in regards to Courage Investment Group's returns on capital employed and the trends, there isn't much change to report on. And investors may be expecting the fundamentals to get a lot worse because the stock has crashed 79% over the last five years. Therefore based on the analysis done in this article, we don't think Courage Investment Group has the makings of a multi-bagger.

Like most companies, Courage Investment Group does come with some risks, and we've found 1 warning sign that you should be aware of.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.