Some Investors May Be Worried About Shenzhen International Holdings' (HKG:152) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Although, when we looked at Shenzhen International Holdings (HKG:152), it didn't seem to tick all of these boxes.

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. The formula for this calculation on Shenzhen International Holdings is:

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

0.044 = HK$4.2b ÷ (HK$124b - HK$29b) (Based on the trailing twelve months to December 2021).

So, Shenzhen International Holdings has an ROCE of 4.4%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 6.0%.

See our latest analysis for Shenzhen International Holdings

In the above chart we have measured Shenzhen International Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Shenzhen International Holdings here for free.

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

On the surface, the trend of ROCE at Shenzhen International Holdings doesn't inspire confidence. Around five years ago the returns on capital were 5.6%, but since then they've fallen to 4.4%. Meanwhile, the business is utilizing more capital but this hasn't moved the needle much in terms of sales in the past 12 months, so this could reflect longer term investments. It may take some time before the company starts to see any change in earnings from these investments.

Our Take On Shenzhen International Holdings' ROCE

To conclude, we've found that Shenzhen International Holdings is reinvesting in the business, but returns have been falling. And investors appear hesitant that the trends will pick up because the stock has fallen 22% in the last five years. On the whole, we aren't too inspired by the underlying trends and we think there may be better chances of finding a multi-bagger elsewhere.

If you'd like to know more about Shenzhen International Holdings, we've spotted 4 warning signs, and 1 of them shouldn't be ignored.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high 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.