Anchun International Holdings' (SGX:BTX) Returns On Capital Not Reflecting Well On The Business

Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. In light of that, from a first glance at Anchun International Holdings (SGX:BTX), we've spotted some signs that it could be struggling, so let's investigate.

What Is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. The formula for this calculation on Anchun International Holdings is:

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

0.0062 = CN¥1.9m ÷ (CN¥416m - CN¥106m) (Based on the trailing twelve months to December 2024).

So, Anchun International Holdings has an ROCE of 0.6%. Ultimately, that's a low return and it under-performs the Machinery industry average of 4.3%.

Check out our latest analysis for Anchun International Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for Anchun International Holdings' ROCE against it's prior returns. If you'd like to look at how Anchun International Holdings has performed in the past in other metrics, you can view this free graph of Anchun International Holdings' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

In terms of Anchun International Holdings' historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 1.3%, however they're now substantially lower than that as we saw above. On top of that, it's worth noting that the amount of capital employed within the business has remained relatively steady. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. If these trends continue, we wouldn't expect Anchun International Holdings to turn into a multi-bagger.

Our Take On Anchun International Holdings' ROCE

In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. But investors must be expecting an improvement of sorts because over the last five yearsthe stock has delivered a respectable 52% return. In any case, the current underlying trends don't bode well for long term performance so unless they reverse, we'd start looking elsewhere.

If you'd like to know more about Anchun International Holdings, we've spotted 2 warning signs, and 1 of them is potentially serious.

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.