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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at OneConstruction Group( NASDAQ:ONEG ), it didn't seem to tick all of these boxes.
Return On Capital Employed (ROCE): What Is It?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for OneConstruction Group, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.05 = US$1.7m ÷ (US$50m - US$16m) (Based on the trailing twelve months to March 2025) .
Thus, OneConstruction Group has an ROCE of 5.0%.In absolute terms, that's a low return and it also under-performs the Construction industry average of 16%.
Check out our latest analysis for OneConstruction Group
Historical performance is a great place to start when researching a stock so above you can see the gauge for OneConstruction Group's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of OneConstruction Group .
What Can We Tell From OneConstruction Group's ROCE Trend?
On the surface, the trend of ROCE at OneConstruction Group doesn't inspire confidence. To be more specific, ROCE has fallen from 36% over the last two years. Given the business is employing more capital while revenue has slipped, this is a bit concerning. This could mean that the business is losing its competitive advantage or market share, because while more money is being put into ventures, it's actually producing a lower return - "less bang for their buck" per se.
On a related note, OneConstruction Group has decreased its current liabilities to 32% of total assets. Since the ratio used to be 88%, that's a significant reduction and it no doubt explains the drop in ROCE. Effectively this means their suppliers or short-term creditors are funding less of the business, which reduces some elements of risk. Some would claim this reduces the business' efficiency at generating ROCE since it is now funding more of the operations with its own money.
In Conclusion...
From the above analysis, we find it rather worrisome that returns on capital and sales for OneConstruction Group have fallen, meanwhile the business is employing more capital than it was two years ago. Long term shareholders who've owned the stock over the last year have experienced a 57% depreciation in their investment, so it appears the market might not like these trends either. Unless there is a shift to a more positive trajectory in these metrics, we would look elsewhere.
OneConstruction Group does have some risks, we noticed 5 warning signs (and 3 which don't sit too well with us) we think you should know about.
While OneConstruction Group isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
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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.
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