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. With that in mind, we’ve noticed some promising trends at China International Holdings (SGX:BEH) so let’s look a bit deeper.
For those who don’t know, ROCE is a measure of a company’s yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for China International Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
0.0091 = CN¥3.9m ÷ (CN¥653m – CN¥223m) (Based on the trailing twelve months to September 2024).
So, China International Holdings has an ROCE of 0.9%. In absolute terms, that’s a low return and it also under-performs the Water Utilities industry average of 7.3%.
See our latest analysis for China International 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 want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of China International Holdings.
China International Holdings has broken into the black (profitability) and we’re sure it’s a sight for sore eyes. While the business was unprofitable in the past, it’s now turned things around and is earning 0.9% on its capital. While returns have increased, the amount of capital employed by China International Holdings has remained flat over the period. With no noticeable increase in capital employed, it’s worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. Because in the end, a business can only get so efficient.
In summary, we’re delighted to see that China International Holdings has been able to increase efficiencies and earn higher rates of return on the same amount of capital. However the stock is down a substantial 86% in the last five years so there could be other areas of the business hurting its prospects. Still, it’s worth doing some further research to see if the trends will continue into the future.
