Renrui Human Resources Technology Holdings (HKG:6919) experiences growth in return on capital

If you’re looking for a multi-bagger, there are a few things to watch out for. Typically, we will want to notice a growth trend come back on capital employed (ROCE) and at the same time, a base capital employed. If you see this, it usually means it’s a company with a great business model and lots of profitable reinvestment opportunities. Speaking of which, we’ve noticed big changes in Renrui Human Resources Technology Holdings’ (HKG:6919) returns on capital, so let’s look.

What is return on capital employed (ROCE)?

For those who don’t know what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital used in its business. The formula for this calculation on Renrui Human Resources Technology Holdings is:

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

0.014 = CN¥18m ÷ (CN¥1.7b – CN¥416m) (Based on the last twelve months to June 2022).

So, Renrui Human Resources Technology Holdings has a ROCE of 1.4%. Ultimately, that’s a poor performer, and it’s below the professional services industry average of 11%.

Check opportunities and risks within Hong Kong’s professional services industry.

SEHK:6919 Return on capital employed October 12, 2022

In the chart above, we measured Renrui Human Resources Technology Holdings’ past ROCE against its past performance, but the future is arguably more important. If you want to see what analysts predict for the future, you should check out our free report for Renrui Human Resources Technology Holdings.

What does Renrui Human Resources Technology Holdings’ ROCE trend tell us?

We are delighted to see that Renrui Human Resources Technology Holdings is reaping the rewards of its investments and is now generating pre-tax profits. The shareholders would no doubt rejoice because the company was loss-making five years ago but now generates 1.4% of its capital. On top of that, Renrui Human Resources Technology Holdings employs 3,251% more capital than before, which is expected of a company trying to become profitable. We like this trend because it tells us that the company has profitable reinvestment opportunities, and if it continues, it can lead to multi-bagger performance.

Along the same lines, the company’s ratio of current liabilities to total assets has decreased to 25%, essentially reducing its funding from short-term creditors or vendors. So this improvement in ROCE comes from the underlying economics of the business, which is great to see.

The essential

Overall, Renrui Human Resources Technology Holdings is getting a big boost from us, largely because it’s now profitable and reinvesting in its business. And since the stock has fallen 46% in the past year, there could be an opportunity here. It therefore seems warranted to do further research on this company and determine whether or not these trends will continue.

Finally, we found 4 warning signs for Renrui Human Resources Technology Holdings (1 is concerning) that you should be aware of.

Although Renrui Human Resources Technology Holdings does not currently generate the highest returns, we have compiled a list of companies that currently generate over 25% return on equity. look at this free list here.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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