Stock Analysis

World-Link Logistics (Asia) Holding (HKG:6083) Will Be Hoping To Turn Its Returns On Capital Around

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SEHK:6083
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If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Although, when we looked at World-Link Logistics (Asia) Holding (HKG:6083), it didn't seem to tick all of these boxes.

What is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on World-Link Logistics (Asia) Holding is:

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

0.12 = HK$15m ÷ (HK$181m - HK$61m) (Based on the trailing twelve months to December 2020).

So, World-Link Logistics (Asia) Holding has an ROCE of 12%. In absolute terms, that's a pretty normal return, and it's somewhat close to the Logistics industry average of 11%.

See our latest analysis for World-Link Logistics (Asia) Holding

roce
SEHK:6083 Return on Capital Employed July 6th 2021

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 want to delve into the historical earnings, revenue and cash flow of World-Link Logistics (Asia) Holding, check out these free graphs here.

What The Trend Of ROCE Can Tell Us

When we looked at the ROCE trend at World-Link Logistics (Asia) Holding, we didn't gain much confidence. To be more specific, ROCE has fallen from 24% over the last five years. 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 World-Link Logistics (Asia) Holding's ROCE

Bringing it all together, while we're somewhat encouraged by World-Link Logistics (Asia) Holding's reinvestment in its own business, we're aware that returns are shrinking. And investors appear hesitant that the trends will pick up because the stock has fallen 69% 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.

On a final note, we've found 3 warning signs for World-Link Logistics (Asia) Holding that we think you should be aware of.

While World-Link Logistics (Asia) 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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