Returns At AMCO United Holding (HKG:630) Are On The Way Up

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. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in AMCO United Holding's (HKG:630) returns on capital, so let's have a look.

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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. To calculate this metric for AMCO United Holding, this is the formula:

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

0.025 = HK$2.4m ÷ (HK$181m - HK$86m) (Based on the trailing twelve months to June 2025).

Therefore, AMCO United Holding has an ROCE of 2.5%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 7.7%.

Check out our latest analysis for AMCO United Holding

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'd like to look at how AMCO United Holding has performed in the past in other metrics, you can view this free graph of AMCO United Holding's past earnings, revenue and cash flow.

The Trend Of ROCE

It's great to see that AMCO United Holding has started to generate some pre-tax earnings from prior investments. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 2.5% on their capital employed. In regards to capital employed, AMCO United Holding is using 37% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. AMCO United Holding could be selling under-performing assets since the ROCE is improving.

On a side note, we noticed that the improvement in ROCE appears to be partly fueled by an increase in current liabilities. Effectively this means that suppliers or short-term creditors are now funding 48% of the business, which is more than it was five years ago. Given it's pretty high ratio, we'd remind investors that having current liabilities at those levels can bring about some risks in certain businesses.

What We Can Learn From AMCO United Holding's ROCE

In a nutshell, we're pleased to see that AMCO United Holding has been able to generate higher returns from less capital. Although the company may be facing some issues elsewhere since the stock has plunged 70% in the last five years. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

If you want to know some of the risks facing AMCO United Holding we've found 3 warning signs (1 is a bit concerning!) that you should be aware of before investing here.

While AMCO United Holding 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.