Some Investors May Be Worried About ANTA Sports Products' (HKG:2020) Returns On Capital

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. 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Looking at ANTA Sports Products (HKG:2020), it does have a high ROCE right now, but lets see how returns are trending.

What Is Return On Capital Employed (ROCE)?

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 ANTA Sports Products, this is the formula:

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

0.21 = CN¥15b ÷ (CN¥92b - CN¥21b) (Based on the trailing twelve months to December 2023).

Therefore, ANTA Sports Products has an ROCE of 21%. In absolute terms that's a great return and it's even better than the Luxury industry average of 10%.

View our latest analysis for ANTA Sports Products

Above you can see how the current ROCE for ANTA Sports Products compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for ANTA Sports Products .

What Does the ROCE Trend For ANTA Sports Products Tell Us?

On the surface, the trend of ROCE at ANTA Sports Products doesn't inspire confidence. While it's comforting that the ROCE is high, five years ago it was 34%. 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.

What We Can Learn From ANTA Sports Products' ROCE

In summary, despite lower returns in the short term, we're encouraged to see that ANTA Sports Products is reinvesting for growth and has higher sales as a result. And the stock has followed suit returning a meaningful 56% to shareholders over the last five years. So should these growth trends continue, we'd be optimistic on the stock going forward.

If you're still interested in ANTA Sports Products it's worth checking out our FREE intrinsic value approximation for 2020 to see if it's trading at an attractive price in other respects.

ANTA Sports Products is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.

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