Returns On Capital Signal Tricky Times Ahead For ManpowerGroup Greater China (HKG:2180)

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Having said that, from a first glance at ManpowerGroup Greater China (HKG:2180) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for ManpowerGroup Greater China, this is the formula:

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).

Therefore, ManpowerGroup Greater China has an ROCE of 12%. On its own, that's a standard return, however it's much better than the 5.5% generated by the Professional Services industry.

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're interested in investigating ManpowerGroup Greater China's past further, check out this free graph of past earnings, revenue and cash flow.

What Does the ROCE Trend For ManpowerGroup Greater China Tell Us?

In terms of ManpowerGroup Greater China's historical ROCE movements, the trend isn't fantastic. Over the last five years, returns on capital have decreased to 12% from 18% five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. 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

While returns have fallen for ManpowerGroup Greater China in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. And there could be an opportunity here if other metrics look good too, because the stock has declined 50% in the last three years. So we think it'd be worthwhile to look further into this stock given the trends look encouraging.

ManpowerGroup Greater China could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.