What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. So on that note, A & S Group (Holdings) (HKG:1737) looks quite promising in regards to its trends of return on capital.
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. To calculate this metric for A & S Group (Holdings), this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.058 = HK$14m ÷ (HK$364m - HK$115m) (Based on the trailing twelve months to September 2024).
Thus, A & S Group (Holdings) has an ROCE of 5.8%. In absolute terms, that's a low return and it also under-performs the Logistics industry average of 7.3%.
Check out our latest analysis for A & S Group (Holdings)
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'd like to look at how A & S Group (Holdings) has performed in the past in other metrics, you can view this free graph of A & S Group (Holdings)'s past earnings, revenue and cash flow .
How Are Returns Trending?
Shareholders will be relieved that A & S Group (Holdings) has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 5.8%, which is always encouraging. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.
In Conclusion...
In summary, we're delighted to see that A & S Group (Holdings) has been able to increase efficiencies and earn higher rates of return on the same amount of capital. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 99% return over the last five years. In light of that, we think it's worth looking further into this stock because if A & S Group (Holdings) can keep these trends up, it could have a bright future ahead.
If you'd like to know about the risks facing A & S Group (Holdings), we've discovered 2 warning signs that you should be aware of.
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.