Investors May Be Concerned About OneForce Holdings’ Capital Returns (HKG: 1933)
If you’re not sure where to start when looking for the next multi-bagger, there are a few key trends you should watch out for. First, we will want to see a return on capital employed (ROCE) which increases and, on the other hand, a based capital employed. Ultimately, this demonstrates that this is a company that is reinvesting its profits at increasing rates of return. Although, when we considered OneForce assets (HKG: 1933), he didn’t seem to tick all of those boxes.
Return on capital employed (ROCE): what is it?
For those who don’t know, ROCE is a measure of a company’s annual pre-tax profit (its return), relative to the capital employed in the company. To calculate this metric for OneForce Holdings, here is the formula:
Return on capital employed = Profit before interest and taxes (EBIT) Ã· (Total assets – Current liabilities)
0.12 = CN Â¥ 26m Ã· (CN Â¥ 364m – CN Â¥ 149m) (Based on the last twelve months up to March 2021).
Therefore, OneForce Holdings has a ROCE of 12%. On its own, that’s a standard return, but it’s way better than the 5.2% generated by the software industry.
See our latest analysis for OneForce Holdings
Historical performance is a great place to start when looking for a stock. So above you can see the gauge of OneForce Holdings’ ROCE compared to its past returns. If you want to take a look at how OneForce Holdings has performed in the past in other metrics, you can check out this free graph of past income, income and cash flow.
What does OneForce Holdings’ ROCE trend tell us?
When we looked at the ROCE trend at OneForce Holdings, we didn’t gain much confidence. About five years ago, returns on capital were 39%, but since then they have fallen to 12%. Although, as income and the amount of assets used in the business have increased, it could suggest that the business is investing in growth and that the additional capital has resulted in a short-term reduction in ROCE. If these investments prove to be successful, it can bode very well for stock performance in the long run.
Another thing to note, OneForce Holdings has a high ratio of current liabilities to total assets of 41%. This effectively means that suppliers (or short-term creditors) fund a large portion of the business, so just be aware that this can introduce some elements of risk. While this isn’t necessarily a bad thing, it can be beneficial if this ratio is lower.
What we can learn from the ROCE of OneForce Holdings
Although returns on capital have declined in the short term, we find promise that both income and capital employed have increased for OneForce Holdings. And there might be an opportunity here if other metrics look good as well, as the stock has fallen 54% in the past three years. So we think it would be interesting to dig deeper into this title given that the trends seem encouraging.
On a separate note, we found 2 warning signs for OneForce Holdings you will probably want to know more.
While OneForce Holdings does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. Check it out free list here.
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