Be Wary Of ManpowerGroup Greater China (HKG:2180) And Its Returns On Capital

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. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Although, when we looked at ManpowerGroup Greater China (HKG:2180), 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. The formula for this calculation on ManpowerGroup Greater China is:

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

0.12 = CN¥148m ÷ (CN¥2.0b - CN¥737m) (Based on the trailing twelve months to June 2023).

So, ManpowerGroup Greater China has an ROCE of 12%. By itself that's a normal return on capital and it's in line with the industry's average returns of 12%.

Check out our latest analysis for ManpowerGroup Greater China

Historical performance is a great place to start when researching a stock so above you can see the gauge for ManpowerGroup Greater China's ROCE against it's prior returns. If you'd like to look at how ManpowerGroup Greater China has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

On the surface, the trend of ROCE at ManpowerGroup Greater China doesn't inspire confidence. To be more specific, ROCE has fallen from 18% over the last five years. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

The Bottom Line On ManpowerGroup Greater China's ROCE

In summary, despite lower returns in the short term, we're encouraged to see that ManpowerGroup Greater China is reinvesting for growth and has higher sales as a result. These growth trends haven't led to growth returns though, since the stock has fallen 42% over the last three years. As a result, we'd recommend researching this stock further to uncover what other fundamentals of the business can show us.

If you're still interested in ManpowerGroup Greater China it's worth checking out our FREE intrinsic value approximation to see if it's trading at an attractive price in other respects.

While ManpowerGroup Greater China 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. 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.