Returns Are Gaining Momentum At Creative China Holdings (HKG:8368)

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Creative China Holdings (HKG:8368) looks quite promising in regards to its trends of return on capital.

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What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Creative China Holdings, this is the formula:

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

0.059 = CN¥18m ÷ (CN¥411m - CN¥110m) (Based on the trailing twelve months to June 2025).

So, Creative China Holdings has an ROCE of 5.9%. In absolute terms, that's a low return but it's around the Entertainment industry average of 7.3%.

See our latest analysis for Creative China Holdings

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

What Does the ROCE Trend For Creative China Holdings Tell Us?

We're delighted to see that Creative China Holdings is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it's earning 5.9% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Creative China Holdings is utilizing 216% more capital than it was five years ago. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 27%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Key Takeaway

In summary, it's great to see that Creative China Holdings has managed to break into profitability and is continuing to reinvest in its business. Since the stock has returned a staggering 145% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 4 warning signs for Creative China Holdings you'll probably want to know about.

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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.