Investors Met With Slowing Returns on Capital At HK Electric Investments and HK Electric Investments (HKG:2638)

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Although, when we looked at HK Electric Investments and HK Electric Investments (HKG:2638), it didn't seem to tick all of these boxes.

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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. To calculate this metric for HK Electric Investments and HK Electric Investments, this is the formula:

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

0.058 = HK$5.4b ÷ (HK$119b - HK$24b) (Based on the trailing twelve months to June 2025).

So, HK Electric Investments and HK Electric Investments has an ROCE of 5.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.5%.

Check out our latest analysis for HK Electric Investments and HK Electric Investments

In the above chart we have measured HK Electric Investments and HK Electric Investments' 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 HK Electric Investments and HK Electric Investments .

So How Is HK Electric Investments and HK Electric Investments' ROCE Trending?

Over the past five years, HK Electric Investments and HK Electric Investments' ROCE and capital employed have both remained mostly flat. 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 HK Electric Investments and HK Electric Investments to be a multi-bagger going forward. That probably explains why HK Electric Investments and HK Electric Investments has been paying out 82% of its earnings as dividends to shareholders. These mature businesses typically have reliable earnings and not many places to reinvest them, so the next best option is to put the earnings into shareholders pockets.

The Bottom Line On HK Electric Investments and HK Electric Investments' ROCE

In summary, HK Electric Investments and HK Electric Investments isn't compounding its earnings but is generating stable returns on the same amount of capital employed. Unsurprisingly, the stock has only gained 1.7% over the last five years, which potentially indicates that investors are accounting for this going forward. As a result, if you're hunting for a multi-bagger, we think you'd have more luck elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 2 warning signs for HK Electric Investments and HK Electric Investments (of which 1 doesn't sit too well with us!) that you should know about.

While HK Electric Investments and HK Electric Investments may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.