Returns On Capital Signal Difficult Times Ahead For China Harmony Auto Holding (HKG:3836)

What financial metrics can indicate to us that a company is maturing or even in decline? Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. On that note, looking into China Harmony Auto Holding (HKG:3836), we weren't too upbeat about how things were going.We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. Return On Capital Employed (ROCE): What Is It? 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 China Harmony Auto Holding: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities) 0.011 = CN¥68m ÷ (CN¥12b - CN¥5.6b) (Based on the trailing twelve months to June 2025). Therefore, China Harmony Auto Holding has an ROCE of 1.1%. Ultimately, that's a low return and it under-performs the Specialty Retail industry average of 9.1%. Check out our latest analysis for China Harmony Auto Holding SEHK:3836 Return on Capital Employed December 15th 2025 Above you can see how the current ROCE for China Harmony Auto Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for China Harmony Auto Holding . What Does the ROCE Trend For China Harmony Auto Holding Tell Us? In terms of China Harmony Auto Holding's historical ROCE trend, it isn't fantastic. To be more specific, today's ROCE was 9.7% five years ago but has since fallen to 1.1%. On top of that, the business is utilizing 21% less capital within its operations. The fact that both are shrinking is an indication that the business is going through some tough times. If these underlying trends continue, we wouldn't be too optimistic going forward. On a side note, China Harmony Auto Holding's current liabilities have increased over the last five years to 47% of total assets, effectively distorting the ROCE to some degree. If current liabilities hadn't increased as much as they did, the ROCE could actually be even lower. And with current liabilities at these levels, suppliers or short-term creditors are effectively funding a large part of the business, which can introduce some risks. The Key Takeaway In summary, it's unfortunate that China Harmony Auto Holding is shrinking its capital base and also generating lower returns. Long term shareholders who've owned the stock over the last five years have experienced a 66% depreciation in their investment, so it appears the market might not like these trends either. With underlying trends that aren't great in these areas, we'd consider looking elsewhere. One more thing to note, we've identified 1 warning sign with China Harmony Auto Holding and understanding this should be part of your investment process. For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity. Mobile Infrastructure for Defense and DisasterThe next wave in robotics isn't humanoid. Its fully autonomous towers delivering 5G, ISR, and radar in under 30 minutes, anywhere.Get the investor briefing before the next round of contractsSponsored On Behalf of CiTech