Returns at Kimou Environmental Holding (HKG: 6805) are on the rise

What trends should we look for if we are to identify stocks that can multiply in value over the long term? Among other things, we’ll want to see two things; first of all, a growth to recover on capital employed (ROCE) and on the other hand, an expansion of the amount capital employed. Basically, it means that a business has profitable initiatives that it can keep reinvesting in, which is a hallmark of a dialing machine. So on that note, Kimou Environmental Holding (HKG: 6805) looks quite promising when it comes to its return on capital trends.

Return on capital employed (ROCE): what is it?

For those who don’t know what ROCE is, it measures the amount of pre-tax profit a business can generate from the capital employed in its business. Analysts use this formula to calculate it for Kimou Environmental Holding:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.077 = CN Â¥ 188m ÷ (CN Â¥ 3.3b – CN Â¥ 859m) (Based on the last twelve months up to June 2021).

Therefore, Kimou Environmental Holding has a ROCE of 7.7%. In absolute terms, this is a low return, but it sits around the commercial services industry average of 8.5%.

See our latest analysis for Kimou Environmental Holding

SEHK: 6805 Return on capital employed on November 15, 2021

Historical performance is a great place to start when looking for a stock. So you can see above the gauge of Kimou Environmental Holding’s ROCE compared to its past returns. If you want to investigate more about Kimou Environmental Holding’s past, check out this free graph of past income, income and cash flow.

So, what is the evolution of Kimou Environmental Holding’s ROCE?

We are happy to see that the ROCE is heading in the right direction, although it is still weak at the moment. Over the past four years, returns on capital employed have increased substantially to 7.7%. Basically the business earns more per dollar of capital invested and on top of that 168% more capital is also used. This may indicate that there are many opportunities to invest capital internally and at increasingly higher rates, a common combination among multi-baggers.

One more thing to note, Kimou Environmental Holding reduced current liabilities to 26% of total assets during this period, effectively reducing the amount of financing from suppliers or short-term creditors. So this improvement in ROCE came from the underlying economics of the business, which is great to see.

Kimou Environmental Holding’s ROCE result

Overall, it is great to see Kimou Environmental Holding reaping the rewards of past investments and increasing its capital base. Investors may not yet be impressed with the favorable underlying trends, as over the past year the stock has only returned 5.9% to shareholders. So with that in mind, we believe the stock deserves further research.

Kimou Environmental Holding does carry certain risks, however, we have found 2 warning signs in our investment analysis, and 1 of them is not going too well with us …

Although Kimou Environmental Holding does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. Check it out free list here.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.

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