IBI Group Holdings (HKG:1547) Has More To Do To Multiply In Value Going Forward

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. In light of that, when we looked at IBI Group Holdings (HKG:1547) and its ROCE trend, we weren't exactly thrilled.

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What Is 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. The formula for this calculation on IBI Group Holdings is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.16 = HK$26m ÷ (HK$351m - HK$187m) (Based on the trailing twelve months to September 2024).

So, IBI Group Holdings has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 5.8% it's much better.

Check out our latest analysis for IBI Group Holdings

Historical performance is a great place to start when researching a stock so above you can see the gauge for IBI Group Holdings' ROCE against it's prior returns. If you're interested in investigating IBI Group Holdings' past further, check out this free graph covering IBI Group Holdings' past earnings, revenue and cash flow .

So How Is IBI Group Holdings' ROCE Trending?

Things have been pretty stable at IBI Group Holdings, with its capital employed and returns on that capital staying somewhat the same for the last five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect IBI Group Holdings to be a multi-bagger going forward.

On a side note, IBI Group Holdings has done well to reduce current liabilities to 53% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk. Although because current liabilities are still 53%, some of that risk is still prevalent.

What We Can Learn From IBI Group Holdings' ROCE

We can conclude that in regards to IBI Group Holdings' returns on capital employed and the trends, there isn't much change to report on. And investors may be recognizing these trends since the stock has only returned a total of 8.8% to shareholders over the last five years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.

One final note, you should learn about the 3 warning signs we've spotted with IBI Group Holdings (including 1 which is concerning) .

While IBI Group Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.