If you're looking for a multi-bagger, there's a few things to keep an eye out for. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. Speaking of which, we noticed some great changes in Future Bright Holdings' (HKG:703) returns on capital, so let's have a look.
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. Analysts use this formula to calculate it for Future Bright Holdings:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.073 = HK$45m ÷ (HK$959m - HK$337m) (Based on the trailing twelve months to December 2024).
So, Future Bright Holdings has an ROCE of 7.3%. Even though it's in line with the industry average of 7.0%, it's still a low return by itself.
Check out our latest analysis for Future Bright Holdings
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 Future Bright Holdings' past further, check out this free graph covering Future Bright Holdings' past earnings, revenue and cash flow.
So How Is Future Bright Holdings' ROCE Trending?
Like most people, we're pleased that Future Bright Holdings is now generating some pretax earnings. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 7.3% on their capital employed. At first glance, it seems the business is getting more proficient at generating returns, because over the same period, the amount of capital employed has reduced by 50%. The reduction could indicate that the company is selling some assets, and considering returns are up, they appear to be selling the right ones.
The Bottom Line On Future Bright Holdings' ROCE
In summary, it's great to see that Future Bright Holdings has been able to turn things around and earn higher returns on lower amounts of capital. Since the total return from the stock has been almost flat over the last five years, there might be an opportunity here if the valuation looks good. So researching this company further and determining whether or not these trends will continue seems justified.
If you'd like to know more about Future Bright Holdings, we've spotted 4 warning signs, and 1 of them makes us a bit uncomfortable.
While Future Bright Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.
Valuation is complex, but we're here to simplify it.
Discover if Future Bright Holdings might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.