These Return Metrics Don't Make South China Holdings (HKG:413) Look Too Strong
Ignoring the stock price of a company, what are the underlying trends that tell us a business is past the growth phase? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. Ultimately this means that the company is earning less per dollar invested and on top of that, it's shrinking its base of capital employed. So after we looked into South China Holdings (HKG:413), the trends above didn't look too great.
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. The formula for this calculation on South China Holdings is:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.0079 = HK$66m ÷ (HK$13b - HK$4.6b) (Based on the trailing twelve months to June 2025).
Therefore, South China Holdings has an ROCE of 0.8%. In absolute terms, that's a low return and it also under-performs the Leisure industry average of 9.1%.
Check out our latest analysis for South China Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for South China Holdings' ROCE against it's prior returns. If you'd like to look at how South China Holdings has performed in the past in other metrics, you can view this free graph of South China Holdings' past earnings, revenue and cash flow.
The Trend Of ROCE
In terms of South China Holdings' historical ROCE movements, the trend doesn't inspire confidence. About five years ago, returns on capital were 1.0%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Since returns are falling and the business has the same amount of assets employed, this can suggest it's a mature business that hasn't had much growth in the last five years. So because these trends aren't typically conducive to creating a multi-bagger, we wouldn't hold our breath on South China Holdings becoming one if things continue as they have.
In Conclusion...
In the end, the trend of lower returns on the same amount of capital isn't typically an indication that we're looking at a growth stock. This could explain why the stock has sunk a total of 74% in the last five years. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.
One final note, you should learn about the 4 warning signs we've spotted with South China Holdings (including 2 which make us uncomfortable) .
While South China Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.