The Return Trends At Feiyu Technology International (HKG:1022) Look Promising

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. So when we looked at Feiyu Technology International (HKG:1022) and its trend of ROCE, we really liked what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for Feiyu Technology International, this is the formula:

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

0.021 = CN¥13m ÷ (CN¥674m - CN¥54m) (Based on the trailing twelve months to June 2024).

Therefore, Feiyu Technology International has an ROCE of 2.1%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 11%.

Check out 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're interested in investigating Feiyu Technology International's past further, check out this free graph covering Feiyu Technology International's past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

Shareholders will be relieved that Feiyu Technology International has broken into profitability. The company was generating losses five years ago, but has managed to turn it around and as we saw earlier is now earning 2.1%, 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. Because in the end, a business can only get so efficient.

Our Take 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. Considering the stock has delivered 13% to its stockholders over the last five years, it may be fair to think that investors aren't fully aware of the promising trends yet. Given that, we'd look further into this stock in case it has more traits that could make it multiply in the long term.

If you'd like to know about the risks facing Feiyu Technology International, we've discovered 3 warning signs that you should be aware of.

While Feiyu Technology International 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.