Investors Will Want Feiyu Technology International's (HKG:1022) Growth In ROCE To Persist

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. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. So on that note, Feiyu Technology International (HKG:1022) looks quite promising in regards to its trends of return on capital.

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 Feiyu Technology International:

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

0.062 = CN¥38m ÷ (CN¥702m - CN¥81m) (Based on the trailing twelve months to December 2023).

Thus, Feiyu Technology International has an ROCE of 6.2%. On its own, that's a low figure but it's around the 7.6% average generated by the Entertainment industry.

See our latest analysis for Feiyu Technology International

Historical performance is a great place to start when researching a stock so above you can see the gauge for Feiyu Technology International's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of Feiyu Technology International.

So How Is Feiyu Technology International's ROCE Trending?

Feiyu Technology International has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 6.2%, which is always encouraging. While returns have increased, the amount of capital employed by Feiyu Technology International has remained flat over the period. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. So if you're looking for high growth, you'll want to see a business's capital employed also increasing.

On a related note, the company's ratio of current liabilities to total assets has decreased to 12%, which basically reduces it's funding from the likes of short-term creditors or suppliers. This tells us that Feiyu Technology International has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

The Bottom Line On Feiyu Technology International's ROCE

To sum it up, Feiyu Technology International is collecting higher returns from the same amount of capital, and that's impressive. Astute investors may have an opportunity here because the stock has declined 20% in the last five years. With that in mind, we believe the promising trends warrant this stock for further investigation.

If you'd like to know about the risks facing Feiyu Technology International, we've discovered 1 warning sign that you should be aware of.

While Feiyu Technology International 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.

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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.