AV Promotions Holdings (HKG:8419) May Have Issues Allocating Its Capital

When researching a stock for investment, what can tell us that the company is in decline? Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. Having said that, after a brief look, AV Promotions Holdings (HKG:8419) we aren't filled with optimism, but let's investigate further.

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Understanding 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 AV Promotions Holdings, this is the formula:

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

0.059 = HK$4.8m ÷ (HK$186m - HK$104m) (Based on the trailing twelve months to June 2025).

Therefore, AV Promotions Holdings has an ROCE of 5.9%. On its own, that's a low figure but it's around the 7.2% average generated by the Commercial Services industry.

See our latest analysis for AV Promotions Holdings

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

So How Is AV Promotions Holdings' ROCE Trending?

In terms of AV Promotions Holdings' historical ROCE trend, it isn't fantastic. Unfortunately, returns have declined substantially over the last five years to the 5.9% we see today. On top of that, the business is utilizing 37% less capital within its operations. When you see both ROCE and capital employed diminishing, it can often be a sign of a mature and shrinking business that might be in structural decline. If these underlying trends continue, we wouldn't be too optimistic going forward.

Another thing to note, AV Promotions Holdings has a high ratio of current liabilities to total assets of 56%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

What We Can Learn From AV Promotions Holdings' ROCE

To see AV Promotions Holdings reducing the capital employed in the business in tandem with diminishing returns, is concerning. We expect this has contributed to the stock plummeting 84% during the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 3 warning signs for AV Promotions Holdings (of which 2 make us uncomfortable!) that you should know about.

While AV Promotions 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.