Here's What's Concerning About Mao Geping Cosmetics' (HKG:1318) Returns On Capital

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Having said that, while the ROCE is currently high for Mao Geping Cosmetics (HKG:1318), we aren't jumping out of our chairs because returns are decreasing.

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What Is 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 Mao Geping Cosmetics is:

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

0.32 = CN¥1.4b ÷ (CN¥5.0b - CN¥854m) (Based on the trailing twelve months to June 2025).

Thus, Mao Geping Cosmetics has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Personal Products industry average of 14%.

Check out our latest analysis for Mao Geping Cosmetics

Above you can see how the current ROCE for Mao Geping Cosmetics compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Mao Geping Cosmetics for free.

How Are Returns Trending?

When we looked at the ROCE trend at Mao Geping Cosmetics, we didn't gain much confidence. To be more specific, while the ROCE is still high, it's fallen from 50% where it was five years ago. However, given capital employed and revenue have both increased it appears that the business is currently pursuing growth, at the consequence of short term returns. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.

Our Take On Mao Geping Cosmetics' ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Mao Geping Cosmetics. Furthermore the stock has climbed 61% over the last year, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.

While Mao Geping Cosmetics doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for 1318 on our platform.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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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.