Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in SITC International Holdings' (HKG:1308) returns on capital, so let's have a look.

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 SITC International Holdings:

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

0.22 = US$483m ÷ (US$2.7b - US$503m) (Based on the trailing twelve months to December 2023).

Therefore, SITC International Holdings has an ROCE of 22%. That's a fantastic return and not only that, it outpaces the average of 7.4% earned by companies in a similar industry.

Above you can see how the current ROCE for SITC International Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering SITC International Holdings for free.

How Are Returns Trending?

Investors would be pleased with what's happening at SITC International Holdings. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 22%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 68%. So we're very much inspired by what we're seeing at SITC International Holdings thanks to its ability to profitably reinvest capital.

In Conclusion...

To sum it up, SITC International Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 185% to shareholders over the last five years, it looks like investors are recognizing these changes. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Like most companies, SITC International Holdings does come with some risks, and we've found 2 warning signs that you should be aware of.

SITC International Holdings is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.