New Century Group Hong Kong (HKG:234) Will Be Hoping To Turn Its Returns On Capital Around

What financial metrics can indicate to us that a company is maturing or even in decline? More often than not, we'll see a declining return on capital employed (ROCE) and a declining amount of capital employed. This indicates the company is producing less profit from its investments and its total assets are decreasing. So after glancing at the trends within New Century Group Hong Kong (HKG:234), we weren't too hopeful.

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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. To calculate this metric for New Century Group Hong Kong, this is the formula:

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

0.0046 = HK$8.7m ÷ (HK$2.0b - HK$92m) (Based on the trailing twelve months to March 2025).

Therefore, New Century Group Hong Kong has an ROCE of 0.5%. In absolute terms, that's a low return and it also under-performs the Hospitality industry average of 8.3%.

View our latest analysis for New Century Group Hong Kong

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 New Century Group Hong Kong.

So How Is New Century Group Hong Kong's ROCE Trending?

In terms of New Century Group Hong Kong's historical ROCE movements, the trend doesn't inspire confidence. Unfortunately the returns on capital have diminished from the 3.6% that they were earning five years ago. And on the capital employed front, the business is utilizing roughly the same amount of capital as it was back then. This combination can be indicative of a mature business that still has areas to deploy capital, but the returns received aren't as high due potentially to new competition or smaller margins. If these trends continue, we wouldn't expect New Century Group Hong Kong to turn into a multi-bagger.

What We Can Learn From New Century Group Hong Kong's ROCE

All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. It should come as no surprise then that the stock has fallen 43% over the last five years, so it looks like investors are recognizing these changes. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.

New Century Group Hong Kong does have some risks though, and we've spotted 1 warning sign for New Century Group Hong Kong that you might be interested in.

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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.