Returns On Capital At Kerry Logistics Network (HKG:636) Have Hit The Brakes

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. 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. In light of that, when we looked at Kerry Logistics Network (HKG:636) and its ROCE trend, we weren't exactly thrilled.

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. Analysts use this formula to calculate it for Kerry Logistics Network:

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

0.063 = HK$1.8b ÷ (HK$42b - HK$13b) (Based on the trailing twelve months to June 2023).

So, Kerry Logistics Network has an ROCE of 6.3%. On its own that's a low return, but compared to the average of 5.1% generated by the Logistics industry, it's much better.

View our latest analysis for Kerry Logistics Network

In the above chart we have measured Kerry Logistics Network's prior ROCE against its prior performance, but the future is arguably more important. If you're interested, you can view the analysts predictions in our free analyst report for Kerry Logistics Network .

So How Is Kerry Logistics Network's ROCE Trending?

There hasn't been much to report for Kerry Logistics Network's returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. So don't be surprised if Kerry Logistics Network doesn't end up being a multi-bagger in a few years time. With fewer investment opportunities, it makes sense that Kerry Logistics Network has been paying out a decent 30% of its earnings to shareholders. Given the business isn't reinvesting in itself, it makes sense to distribute a portion of earnings among shareholders.

The Bottom Line On Kerry Logistics Network's ROCE

We can conclude that in regards to Kerry Logistics Network's returns on capital employed and the trends, there isn't much change to report on. And investors may be recognizing these trends since the stock has only returned a total of 15% to shareholders over the last five years. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

One more thing to note, we've identified 3 warning signs with Kerry Logistics Network and understanding these should be part of your investment process.

While Kerry Logistics Network 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.