Investors Met With Slowing Returns on Capital At Shenglong Splendecor International (HKG:8481)
Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. That's why when we briefly looked at Shenglong Splendecor International's (HKG:8481) ROCE trend, we were pretty happy with what we saw.
What Is 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 Shenglong Splendecor International, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.10 = CN¥80m ÷ (CN¥965m - CN¥187m) (Based on the trailing twelve months to June 2025).
So, Shenglong Splendecor International has an ROCE of 10%. In absolute terms, that's a satisfactory return, but compared to the Commercial Services industry average of 7.1% it's much better.
View our latest analysis for Shenglong Splendecor International
Historical performance is a great place to start when researching a stock so above you can see the gauge for Shenglong Splendecor International's ROCE against it's prior returns. If you'd like to look at how Shenglong Splendecor International has performed in the past in other metrics, you can view this free graph of Shenglong Splendecor International's past earnings, revenue and cash flow.
How Are Returns Trending?
While the current returns on capital are decent, they haven't changed much. The company has consistently earned 10% for the last five years, and the capital employed within the business has risen 292% in that time. 10% is a pretty standard return, and it provides some comfort knowing that Shenglong Splendecor International has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.
On a side note, Shenglong Splendecor International has done well to reduce current liabilities to 19% of total assets over the last five years. This can eliminate some of the risks inherent in the operations because the business has less outstanding obligations to their suppliers and or short-term creditors than they did previously.
In Conclusion...
The main thing to remember is that Shenglong Splendecor International has proven its ability to continually reinvest at respectable rates of return. Therefore it's no surprise that shareholders have earned a respectable 76% return if they held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.
One more thing: We've identified 4 warning signs with Shenglong Splendecor International (at least 1 which is significant) , and understanding them would certainly be useful.
While Shenglong Splendecor International isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.