Be Wary Of Heng Sheng Holding Group (KOSDAQ:900270) And Its Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, from a first glance at Heng Sheng Holding Group (KOSDAQ:900270) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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. To calculate this metric for Heng Sheng Holding Group, this is the formula:

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

0.01 = ₩3.4b ÷ (₩408b - ₩65b) (Based on the trailing twelve months to June 2024).

Thus, Heng Sheng Holding Group has an ROCE of 1.0%. Ultimately, that's a low return and it under-performs the Leisure industry average of 6.2%.

Check out our latest analysis for Heng Sheng Holding Group

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're interested in investigating Heng Sheng Holding Group's past further, check out this free graph covering Heng Sheng Holding Group's past earnings, revenue and cash flow.

What Does the ROCE Trend For Heng Sheng Holding Group Tell Us?

The trend of ROCE doesn't look fantastic because it's fallen from 15% five years ago, while the business's capital employed increased by 30%. Usually this isn't ideal, but given Heng Sheng Holding Group conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Heng Sheng Holding Group's earnings and if they change as a result from the capital raise.

The Key Takeaway

To conclude, we've found that Heng Sheng Holding Group is reinvesting in the business, but returns have been falling. Since the stock has declined 70% over the last five years, investors may not be too optimistic on this trend improving either. In any case, the stock doesn't have these traits of a multi-bagger discussed above, so if that's what you're looking for, 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 4 warning signs for Heng Sheng Holding Group (of which 3 don't sit too well with us!) that you should know about.

While Heng Sheng Holding Group 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.