Be Wary Of Edensoft Holdings (HKG:1147) And Its Returns On Capital

When it comes to investing, there are some useful financial metrics that can warn us when a business is potentially in trouble. When we see a declining return on capital employed (ROCE) in conjunction with a declining base of capital employed, that's often how a mature business shows signs of aging. This reveals that the company isn't compounding shareholder wealth because returns are falling and its net asset base is shrinking. And from a first read, things don't look too good at Edensoft Holdings (HKG:1147), so let's see why.Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. Return On Capital Employed (ROCE): What Is It? For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Edensoft Holdings: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities) 0.065 = CN¥13m ÷ (CN¥341m - CN¥133m) (Based on the trailing twelve months to June 2025). Thus, Edensoft Holdings has an ROCE of 6.5%. Even though it's in line with the industry average of 6.3%, it's still a low return by itself. View our latest analysis for Edensoft Holdings SEHK:1147 Return on Capital Employed December 31st 2025 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 Edensoft Holdings' past further, check out this free graph covering Edensoft Holdings' past earnings, revenue and cash flow. What The Trend Of ROCE Can Tell Us There is reason to be cautious about Edensoft Holdings, given the returns are trending downwards. About five years ago, returns on capital were 15%, however they're now substantially lower than that as we saw above. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Edensoft Holdings to turn into a multi-bagger. Our Take On Edensoft Holdings' ROCE All in all, the lower returns from the same amount of capital employed aren't exactly signs of a compounding machine. Yet despite these concerning fundamentals, the stock has performed strongly with a 52% return over the last five years, so investors appear very optimistic. Regardless, we don't feel too comfortable with the fundamentals so we'd be steering clear of this stock for now. On a final note, we found 4 warning signs for Edensoft Holdings (2 shouldn't be ignored) you should be aware of. 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. 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