Legion Consortium's (HKG:2129) Returns On Capital Not Reflecting Well On The Business
Legion Consortium (HKG:2129) has a low Return on Capital Employed (ROCE) of 1.2%, significantly below the Transportation industry average of 5.5%. Despite reinvesting for long-term growth, sales have not increased, leading to a decline in ROCE from 24% over the past five years. The stock has returned only 12% to shareholders in the last three years, suggesting investors may want to consider other options for better returns.
If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, from a first glance at Legion Consortium (HKG:2129) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.
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Understanding Return On Capital Employed (ROCE)
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. To calculate this metric for Legion Consortium, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.012 = S$731k ÷ (S$73m - S$11m) (Based on the trailing twelve months to June 2025).
Thus, Legion Consortium has an ROCE of 1.2%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 5.5%.
View our latest analysis for Legion Consortium
Historical performance is a great place to start when researching a stock so above you can see the gauge for Legion Consortium's ROCE against it's prior returns. If you're interested in investigating Legion Consortium's past further, check out this free graph covering Legion Consortium's past earnings, revenue and cash flow.
What Can We Tell From Legion Consortium's ROCE Trend?
When we looked at the ROCE trend at Legion Consortium, we didn't gain much confidence. To be more specific, ROCE has fallen from 24% over the last five years. However it looks like Legion Consortium might be reinvesting for long term growth because while capital employed has increased, the company's sales haven't changed much in the last 12 months. It may take some time before the company starts to see any change in earnings from these investments.
In Conclusion...
In summary, Legion Consortium is reinvesting funds back into the business for growth but unfortunately it looks like sales haven't increased much just yet. And investors may be recognizing these trends since the stock has only returned a total of 12% to shareholders over the last three years. Therefore, if you're looking for a multi-bagger, we'd propose looking at other options.
One final note, you should learn about the 4 warning signs we've spotted with Legion Consortium (including 2 which are a bit unpleasant) .
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.
