What Do The Returns On Capital At ManpowerGroup Greater China (HKG:2180) Tell Us?

If you're looking for a multi-bagger, there's a few things to keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over ManpowerGroup Greater China's (HKG:2180) trend of ROCE, we liked what we saw.

Return On Capital Employed (ROCE): What is it?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed 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¥157m ÷ (CN¥1.8b - CN¥507m) (Based on the trailing twelve months to June 2020).

Thus, ManpowerGroup Greater China has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 13% generated by the Professional Services industry.

View our latest analysis for ManpowerGroup Greater China

Above you can see how the current ROCE for ManpowerGroup Greater China compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for ManpowerGroup Greater China.

What Can We Tell From ManpowerGroup Greater China's ROCE Trend?

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 82% more capital in the last three years, and the returns on that capital have remained stable at 12%. Since 12% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line

In the end, ManpowerGroup Greater China has proven its ability to adequately reinvest capital at good rates of return. Therefore it's no surprise that shareholders have earned a respectable 13% return if they held over the last year. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

ManpowerGroup Greater China does have some risks though, and we've spotted 2 warning signs for ManpowerGroup Greater China that you might be interested in.

While ManpowerGroup Greater China may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. 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.
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