Green Future Food Hydrocolloid Marine Science (HKG:1084) Is Aiming To Keep Up Its Impressive Returns

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. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, the ROCE of Green Future Food Hydrocolloid Marine Science (HKG:1084) looks attractive right now, so lets see what the trend of returns can tell us.

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

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. The formula for this calculation on Green Future Food Hydrocolloid Marine Science is:

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

0.31 = HK$336m ÷ (HK$1.9b - HK$809m) (Based on the trailing twelve months to December 2022).

So, Green Future Food Hydrocolloid Marine Science has an ROCE of 31%. That's a fantastic return and not only that, it outpaces the average of 7.7% earned by companies in a similar industry.

Check out our latest analysis for Green Future Food Hydrocolloid Marine Science

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 Green Future Food Hydrocolloid Marine Science has performed in the past in other metrics, you can view this free graph of Green Future Food Hydrocolloid Marine Science's past earnings, revenue and cash flow.

So How Is Green Future Food Hydrocolloid Marine Science's ROCE Trending?

We'd be pretty happy with returns on capital like Green Future Food Hydrocolloid Marine Science. The company has consistently earned 31% for the last five years, and the capital employed within the business has risen 132% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. You'll see this when looking at well operated businesses or favorable business models.

On a separate but related note, it's important to know that Green Future Food Hydrocolloid Marine Science has a current liabilities to total assets ratio of 43%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Key Takeaway

Green Future Food Hydrocolloid Marine Science has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. Yet over the last three years the stock has declined 31%, so the decline might provide an opening. For that reason, savvy investors might want to look further into this company in case it's a prime investment.

Green Future Food Hydrocolloid Marine Science does have some risks, we noticed 4 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

Green Future Food Hydrocolloid Marine Science 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.