Scholar Education Group Return on Capital (HKG:1769) Paint on Painting A

What trends should you look for to identify stocks with the potential to grow in value over the long term? One common approach is to look for companies that: Return value Capital employed increasing with growth (ROCE) amount of capital employed. This shows that it is a compounding machine and the earnings can be continuously reinvested into the business to generate higher profits.However, when I looked into it, academic education group (HKG:1769), I don't think the current trend fits into the multibagger mold.

Return on Capital Employed (ROCE): What is it?

For those who have never used ROCE before, it measures the “return” (pre-tax profit) that a company generates from the capital employed in its business. To calculate this metric for Scholar Education Group, use the following formula:

Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)

0.12 = 58 million CN ÷ (735 million CN – 229 million CN) (Based on the previous 12 months to June 2023).

therefore, Scholar Education Group's ROCE is 12%. This is a relatively normal return on capital, around 11% generated by the consumer services industry.

Check out our latest analysis for Scholar Education Group.

Above you can see how the current ROCE for Scholar Education Group compares to previous returns on equity, but there's only so much you can tell from the past. If you want, check out forecasts from the analysts covering Scholar Education Group. free.

So how is Scholar Education Group's ROCE trending?

When we looked at Scholar Education Group's ROCE trends, we didn't find ourselves very confident. Over the past five years, his return on capital has fallen to 12% from 54% five years ago. However, Scholar Education Group appears to be reinvesting for long-term growth. That's because, although capital employed has increased, the company's sales haven't changed much over the past 12 months. It's worth keeping an eye on the company's earnings going forward to see if these investments ultimately contribute to its bottom line.

Relatedly, Scholar Education Group reduced its current liabilities to 31% of total assets. So we can attribute some of this to her reduced ROCE. This effectively means that suppliers and short-term creditors reduce funding for the business, reducing some of the risk factors. Because companies are now self-funding more of their operations, some argue that this makes them less efficient at generating ROCE.

Important points

In conclusion, we've found that although Scholar Education Group is reinvesting in the business, its profits are declining. Over the past three years, the stock has given away 46% of his value, so the market doesn't have much hope for these trends to strengthen anytime soon. Overall, the inherent tendency is not unique to multibaggers, so we think if that's what you're looking for, you might have better luck elsewhere.

Like most businesses, Scholar Education Group is subject to some risks. 3 warning signs What you need to know.

Scholar Education Group doesn't have the best returns, but check this out. free A list of companies with solid balance sheets and high return on equity.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.