Net-a-Go Technology's (HKG:1483) Returns On Capital Are Heading Higher

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at Net-a-Go Technology (HKG:1483) and its trend of ROCE, we really liked what we saw.

What Is 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. Analysts use this formula to calculate it for Net-a-Go Technology:

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

0.0042 = HK$2.9m ÷ (HK$845m - HK$160m) (Based on the trailing twelve months to June 2022).

Thus, Net-a-Go Technology has an ROCE of 0.4%. Ultimately, that's a low return and it under-performs the Commercial Services industry average of 8.2%.

See our latest analysis for Net-a-Go Technology

Historical performance is a great place to start when researching a stock so above you can see the gauge for Net-a-Go Technology's ROCE against it's prior returns. If you're interested in investigating Net-a-Go Technology's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For Net-a-Go Technology Tell Us?

The fact that Net-a-Go Technology is now generating some pre-tax profits from its prior investments is very encouraging. The company was generating losses five years ago, but now it's earning 0.4% which is a sight for sore eyes. And unsurprisingly, like most companies trying to break into the black, Net-a-Go Technology is utilizing 291% more capital than it was five years ago. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.

On a related note, the company's ratio of current liabilities to total assets has decreased to 19%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Net-a-Go Technology has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

Our Take On Net-a-Go Technology's ROCE

To the delight of most shareholders, Net-a-Go Technology has now broken into profitability. Given the stock has declined 46% in the last five years, this could be a good investment if the valuation and other metrics are also appealing. So researching this company further and determining whether or not these trends will continue seems justified.

One more thing: We've identified 2 warning signs with Net-a-Go Technology (at least 1 which is concerning) , 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.

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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. 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.