Fosun Tourism Group (HKG:1992) Is Looking To Continue Growing Its Returns On Capital


There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we’d like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it’s a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we’ve noticed some promising trends at Fosun Tourism Group (HKG:1992) so let’s look a bit deeper.

Understanding Return On Capital Employed (ROCE)

If you haven’t worked with ROCE before, it measures the ‘return’ (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Fosun Tourism Group, this is the formula:

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

0.055 = CN¥1.4b ÷ (CN¥39b – CN¥15b) (Based on the trailing twelve months to June 2023).

Therefore, Fosun Tourism Group has an ROCE of 5.5%. In absolute terms, that’s a low return, but it’s much better than the Hospitality industry average of 3.8%.

See our latest analysis for Fosun Tourism Group

SEHK:1992 Return on Capital Employed February 21st 2024

In the above chart we have measured Fosun Tourism Group’s prior ROCE against its prior performance, but the future is arguably more important. If you’re interested, you can view the analysts predictions in our free analyst report for Fosun Tourism Group .

The Trend Of ROCE

We’re delighted to see that Fosun Tourism Group is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses five years ago, but now it’s earning 5.5% which is a sight for sore eyes. In addition to that, Fosun Tourism Group is employing 104% more capital than previously which is expected of a company that’s trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Fosun Tourism Group has decreased current liabilities to 37% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. Therefore we can rest assured that the growth in ROCE is a result of the business’ fundamental improvements, rather than a cooking class featuring this company’s books.

The Bottom Line On Fosun Tourism Group’s ROCE

Long story short, we’re delighted to see that Fosun Tourism Group’s reinvestment activities have paid off and the company is now profitable. Astute investors may have an opportunity here because the stock has declined 69% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing: We’ve identified 2 warning signs with Fosun Tourism Group (at least 1 which doesn’t sit too well with us) , and understanding them would certainly be useful.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Valuation is complex, but we’re helping make it simple.

Find out whether Fosun Tourism Group is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.



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