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

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. So on that note, Gangyu Smart Urban Services Holding (HKG:265) looks quite promising in regards to its trends of return on capital.

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Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. To calculate this metric for Gangyu Smart Urban Services Holding, this is the formula:

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

0.11 = HK$55m ÷ (HK$631m - HK$149m) (Based on the trailing twelve months to December 2024).

So, Gangyu Smart Urban Services Holding has an ROCE of 11%. On its own, that's a standard return, however it's much better than the 8.0% generated by the Hospitality industry.

Check out 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're interested in investigating Gangyu Smart Urban Services Holding's past further, check out this free graph covering Gangyu Smart Urban Services Holding's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

It's great to see that Gangyu Smart Urban Services Holding has started to generate some pre-tax earnings from prior investments. While the business is profitable now, it used to be incurring losses on invested capital five years ago. In regards to capital employed, Gangyu Smart Urban Services Holding is using 42% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. Gangyu Smart Urban Services Holding could be selling under-performing assets since the ROCE is improving.

The Bottom Line

In a nutshell, we're pleased to see that Gangyu Smart Urban Services Holding has been able to generate higher returns from less capital. Astute investors may have an opportunity here because the stock has declined 64% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

On a separate note, we've found 1 warning sign for Gangyu Smart Urban Services Holding you'll probably want to know about.

While Gangyu Smart Urban Services Holding 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.