Return Trends At HK Electric Investments and HK Electric Investments (HKG:2638) Aren't Appealing

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. In light of that, when we looked at HK Electric Investments and HK Electric Investments (HKG:2638) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

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 HK Electric Investments and HK Electric Investments is:

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

0.043 = HK$5.0b ÷ (HK$121b - HK$4.5b) (Based on the trailing twelve months to June 2023).

Thus, HK Electric Investments and HK Electric Investments has an ROCE of 4.3%. In absolute terms, that's a low return but it's around the Electric Utilities industry average of 5.3%.

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 report on analyst forecasts for the company.

What Does the ROCE Trend For HK Electric Investments and HK Electric Investments Tell Us?

There hasn't been much to report for HK Electric Investments and HK Electric Investments' 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. So unless we see a substantial change at HK Electric Investments and HK Electric Investments in terms of ROCE and additional investments being made, we wouldn't hold our breath on it being a multi-bagger. That being the case, it makes sense that HK Electric Investments and HK Electric Investments has been paying out 88% of its earnings to its shareholders. Most shareholders probably know this and own the stock for its dividend.

Our Take On HK Electric Investments and HK Electric Investments' ROCE

In a nutshell, HK Electric Investments and HK Electric Investments has been trudging along with the same returns from the same amount of capital over the last five years. And investors appear hesitant that the trends will pick up because the stock has fallen 26% in the last five years. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.

One more thing, we've spotted 2 warning signs facing HK Electric Investments and HK Electric Investments that you might find interesting.

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.