WK Group (Holdings) (HKG:2535) Will Be Hoping To Turn Its Returns On Capital Around

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. In light of that, when we looked at WK Group (Holdings) (HKG:2535) and its ROCE trend, we weren't exactly thrilled.

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Understanding Return On Capital Employed (ROCE)

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for WK Group (Holdings):

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

0.14 = HK$36m ÷ (HK$312m - HK$47m) (Based on the trailing twelve months to June 2025).

So, WK Group (Holdings) has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Construction industry average of 5.1% it's much better.

View our latest analysis for WK Group (Holdings)

Historical performance is a great place to start when researching a stock so above you can see the gauge for WK Group (Holdings)'s ROCE against it's prior returns. If you'd like to look at how WK Group (Holdings) has performed in the past in other metrics, you can view this free graph of WK Group (Holdings)'s past earnings, revenue and cash flow.

So How Is WK Group (Holdings)'s ROCE Trending?

When we looked at the ROCE trend at WK Group (Holdings), we didn't gain much confidence. To be more specific, ROCE has fallen from 34% over the last four years. However it looks like WK Group (Holdings) might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.

On a related note, WK Group (Holdings) has decreased its current liabilities to 15% of total assets. That could partly explain why the ROCE has dropped. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.

Our Take On WK Group (Holdings)'s ROCE

In summary, WK Group (Holdings) is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors may be recognizing these trends since the stock has only returned a total of 3.0% to shareholders over the last year. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you want to continue researching WK Group (Holdings), you might be interested to know about the 1 warning sign that our analysis has discovered.

While WK Group (Holdings) isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.