Wisdom Education International Holdings (HKG: 6068) capital returns do not reflect the company well

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 would like to identify a growth to recover on capital employed (ROCE) and in parallel, 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 Wisdom Education International Holdings (HKG: 6068), it didn’t seem to tick all of those boxes.

Return on capital employed (ROCE): what is it?

For those who don’t know what ROCE is, it measures the amount of pre-tax profit a business can generate from the capital employed in its business. The formula for this calculation on Wisdom Education International Holdings is:

Return on capital employed = Profit before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)

0.10 = CN ¥ 658m ÷ (CN ¥ 8.6b – CN ¥ 2.2b) (Based on the last twelve months up to February 2021).

Thereby, Wisdom Education International Holdings has a ROCE of 10%. In absolute terms, this is a satisfactory performance, but compared to the consumer service industry average of 7.8%, it is much better.

Check out our latest analysis for Wisdom Education International Holdings

SEHK: 6068 Return on capital employed October 28, 2021

Above you can see how Wisdom Education International Holdings’ current ROCE compares to its previous returns, but there is little you can say about the past. If you are interested, you can view analyst forecasts in our free analyst forecast report for the company.

What does Wisdom Education International Holdings’ ROCE trend tell us?

We weren’t thrilled with the trend as Wisdom Education International Holdings’ ROCE declined 27% over the past five years, while the company employed 335% more equity. However, part of the increase in capital employed could be attributed to the recent fundraising that took place before their last reporting period, so keep that in mind when looking at the decline in ROCE. It is unlikely that all funds raised have been used yet, therefore, Wisdom Education International Holdings may not have received a full period of income contribution from it.

In addition, Wisdom Education International Holdings has done well to reduce its current liabilities to 25% of total assets. So we could link some of that to the decrease in ROCE. In addition, it can reduce some aspects of the risk to the business, as the company’s suppliers or short-term creditors are now less funding its operations. Since the company essentially finances a larger portion of its operations with its own money, you could argue that this has made the company less efficient at generating ROCE.

The key to take away

To conclude, we found that Wisdom Education International Holdings is reinvesting in the business, but the returns are declining. Given that the stock has fallen 59% over the past three years, investors may not be overly optimistic that this trend will improve either. Therefore, based on the analysis done in this article, we don’t think Wisdom Education International Holdings has the makings of a multi-bagger.

On a separate note, we have found 3 warning signs for Wisdom Education International Holdings you will probably want to know more.

Although Wisdom Education International Holdings does not generate the highest return, check out this free list of companies that generate high returns on equity with strong balance sheets.

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

Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.

Source link

About Columbus J. Perrault

Check Also

Raffles Education Breaks Down CEO Compensation in Latest Responses to SGX RegCo, Companies & Markets News & Top Stories

SINGAPORE (BUSINESS HOURS) – Raffles Education has broken down the compensation of Managing Director and …

Leave a Reply

Your email address will not be published. Required fields are marked *