Duiba Group (HKG:1753) Will Be Hoping To Turn Its Returns On Capital Around

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. 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, from a first glance at Duiba Group (HKG:1753) we aren't jumping out of our chairs at how returns are trending, but let's have a deeper look.

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 Duiba Group is:

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

0.024 = CN¥33m ÷ (CN¥2.1b - CN¥788m) (Based on the trailing twelve months to June 2023).

Thus, Duiba Group has an ROCE of 2.4%. In absolute terms, that's a low return and it also under-performs the Interactive Media and Services industry average of 7.7%.

Check out our latest analysis for Duiba Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for Duiba Group's ROCE against it's prior returns. If you'd like to look at how Duiba Group has performed in the past in other metrics, you can view this free graph of Duiba Group's past earnings, revenue and cash flow.

So How Is Duiba Group's ROCE Trending?

On the surface, the trend of ROCE at Duiba Group doesn't inspire confidence. To be more specific, ROCE has fallen from 30% over the last five years. 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.

The Bottom Line On Duiba Group's ROCE

While returns have fallen for Duiba Group in recent times, we're encouraged to see that sales are growing and that the business is reinvesting in its operations. But since the stock has dived 87% in the last three years, there could be other drivers that are influencing the business' outlook. Regardless, reinvestment can pay off in the long run, so we think astute investors may want to look further into this stock.

On a final note, we found 2 warning signs for Duiba Group (1 is potentially serious) you should be aware of.

While Duiba Group 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.