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Combine Will International Holdings Limiteds (SGX: N0Z) Is 11% return on capital employed good news?

 


Today we’re going to look at Combine Will International Holdings Limited (SGX: N0Z) to see if it could be an interesting investment prospect. In particular, we will consider its return on capital employed (ROCE), as this can give us an overview of the profitability with which the company is able to use capital in its activities.

First, we will see what ROCE is and how we calculate it. Second, we will look at its ROCE compared to similar companies. Finally, we will see how its current liabilities affect its ROCE.

What is return on capital employed (ROCE)?

ROCE is a measure of the annual pre-tax profit of a business (its return), relative to the capital employed in the business. In general, a higher ROCE is preferable. In short, it is a useful tool, but it is not without drawbacks. Michael Mauboussin, renowned investment researcher suggested that a high ROCE may indicate that “a dollar invested in the business generates a value greater than a dollar”.

So how do we calculate ROCE?

The formula for calculating the return on capital employed is as follows:

Return on capital employed = earnings before interest and taxes (EBIT) (total assets – current liabilities)

Or to combine Will International Holdings:

0.11 = HK $ 83 million (HK $ 1.6 million – HK $ 773 million) (Based on the last twelve months until December 2019.)

Therefore, Combine Will International Holdings has an ROCE of 11%.

Check out our latest analysis for Combine Will International Holdings

Is the ROCE of Combine Will International Holdings good?

Investors may find ROCE useful when making comparisons between similar companies. We can see that the ROCE of Combine Will International Holdings is around the 9.1% average declared by the leisure industry. Regardless of the performance of Combine Will International Holdings relative to its industry, its ROCE in absolute terms appears to be satisfactory, and further research may be useful.

Combine Will International Holdings posted an ROCE of 11% – better than 3 years ago, when the company had made no profits. This makes us wonder if the business is improving. You can see in the image below how the ROCE of Combine Will International Holdings compares to its industry. Click to learn more about past growth.

SGX: previous revenues and net profit N0Z April 10, 2020
SGX: previous revenues and net profit N0Z April 10, 2020

When examining this metric, keep in mind that it is retrospective and not necessarily predictive. ROCE can be misleading for cyclical companies, as returns can be incredible during boom times and dreadfully low during slowdowns. ROCE is only a one-off measure. If Combine Will International Holdings is cyclical, it might be a good idea to check this free graph of past revenues, revenues and cash flows.

How to Combine International Holdings’ Current Liability Will Impact ROCE

Current liabilities are short-term invoices and invoices that must be paid in 12 months or less. The ROCE equation subtracts current liabilities from capital employed, so that a business with many current liabilities appears to have less capital employed and a higher ROCE than otherwise. To check the impact of this, we calculate if a business has high current liabilities relative to its total assets.

Combine Will International Holdings has total assets of HK $ 1.6 billion and current liabilities of HK $ 773 million. Consequently, its current liabilities are equivalent to approximately 50% of its total assets. Combining Will International Holdings with an average level of current liabilities, which would increase ROCE.

Our approach to combining ROCE from Will International Holdings

Combining ROCE from Will International Holdings looks good, but the level of current liabilities also helps. Combining Will International Holdings looks good under this analysis, but it’s by no means the only company to deliver excellent numbers . You might also want to check this free a collection of companies with excellent earnings growth.

If you are like me, then you do not want to miss this free list of growing companies that insiders buy.

If you spot an error that merits correction, please contact the publisher at [email protected]. This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell securities and does not take into account your objectives or your financial situation. Simply Wall St has no position in the stocks mentioned.

Our goal is to provide you with long-term targeted research analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive corporate announcements or qualitative material. Thanks for the reading.

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