Yahoo Finance Returns On Capital Signal Difficult Times Ahead For Hosen Group (Catalist:5EV)
When researching a stock for investment, what can tell us that the company is in decline? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. So after glancing at the trends within Hosen Group (Catalist:5EV), we weren't too hopeful.
What Is Return On Capital Employed (ROCE)?
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. The formula for this calculation on Hosen Group is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.034 = S$1.3m ÷ (S$53m - S$15m) (Based on the trailing twelve months to December 2023).
So, Hosen Group has an ROCE of 3.4%. Ultimately, that's a low return and it under-performs the Consumer Retailing industry average of 4.5%.
Check out our latest analysis for Hosen Group
Historical performance is a great place to start when researching a stock so above you can see the gauge for Hosen Group's ROCE against it's prior returns. If you're interested in investigating Hosen Group's past further, check out this free graph covering Hosen Group's past earnings, revenue and cash flow.
What Does the ROCE Trend For Hosen Group Tell Us?
There is reason to be cautious about Hosen Group, given the returns are trending downwards. To be more specific, the ROCE was 7.0% five years ago, but since then it has dropped noticeably. 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 Hosen Group to turn into a multi-bagger.
In Conclusion...
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. Investors must expect better things on the horizon though because the stock has risen 7.4% in the last five years. Regardless, we don't like the trends as they are and if they persist, we think you might find better investments elsewhere.
On a final note, we found 3 warning signs for Hosen Group (1 makes us a bit uncomfortable) you should be aware of.
If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.
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