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華爾街日報Xi'an Kingfar Property Services (HKG:1354) Will Want To Turn Around Its Return Trends
If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base 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. Looking at Xi'an Kingfar Property Services (HKG:1354), it does have a high ROCE right now, but lets see how returns are trending.
What Is Return On Capital Employed (ROCE)?
For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Xi'an Kingfar Property Services:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.26 = CN¥78m ÷ (CN¥818m - CN¥521m) (Based on the trailing twelve months to June 2025).
Therefore, Xi'an Kingfar Property Services has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Commercial Services industry average of 7.2%.
View our latest analysis for Xi'an Kingfar Property Services
While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you're interested in investigating Xi'an Kingfar Property Services' past further, check out this free graph covering Xi'an Kingfar Property Services' past earnings, revenue and cash flow.
How Are Returns Trending?
On the surface, the trend of ROCE at Xi'an Kingfar Property Services doesn't inspire confidence. While it's comforting that the ROCE is high, three years ago it was 41%. On the other hand, the company has been employing more capital without a corresponding improvement in sales in the last year, which could suggest these investments are longer term plays. It may take some time before the company starts to see any change in earnings from these investments.
On a side note, Xi'an Kingfar Property Services has done well to pay down its current liabilities to 64% of total assets. So we could link some of this to the decrease in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE. Either way, they're still at a pretty high level, so we'd like to see them fall further if possible.
In Conclusion...
Bringing it all together, while we're somewhat encouraged by Xi'an Kingfar Property Services' reinvestment in its own business, we're aware that returns are shrinking. And investors may be expecting the fundamentals to get a lot worse because the stock has crashed 88% over the last year. All in all, the inherent trends aren't typical of multi-baggers, so if that's what you're after, we think you might have more luck elsewhere.
Like most companies, Xi'an Kingfar Property Services does come with some risks, and we've found 2 warning signs that you should be aware of.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns 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 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.