We Like These Underlying Return On Capital Trends At Gangyu Smart Urban Services Holding (HKG:265)

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. 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. Speaking of which, we noticed some great changes in Gangyu Smart Urban Services Holding's (HKG:265) returns on capital, so let's have a look.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on Gangyu Smart Urban Services Holding is:

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

0.11 = HK$53m ÷ (HK$638m - HK$134m) (Based on the trailing twelve months to June 2025).

Therefore, Gangyu Smart Urban Services Holding has an ROCE of 11%. In absolute terms, that's a satisfactory return, but compared to the Hospitality industry average of 8.3% it's much better.

View our latest analysis for Gangyu Smart Urban Services Holding

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Gangyu Smart Urban Services Holding has performed in the past in other metrics, you can view this free graph of Gangyu Smart Urban Services Holding's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Gangyu Smart Urban Services Holding is reaping rewards from its investments and has now broken into profitability. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 11% on their capital employed. Additionally, the business is utilizing 36% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.

In Conclusion...

From what we've seen above, Gangyu Smart Urban Services Holding has managed to increase it's returns on capital all the while reducing it's capital base. Astute investors may have an opportunity here because the stock has declined 52% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

On a final note, we found 2 warning signs for Gangyu Smart Urban Services Holding (1 doesn't sit too well with us) you should be aware of.

While Gangyu Smart Urban Services Holding 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.

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.