BAIOO Family Interactive (HKG:2100) Might Have The Makings Of A Multi-Bagger

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, BAIOO Family Interactive (HKG:2100) looks quite promising in regards to its trends of return on capital.

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 BAIOO Family Interactive is:

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

0.12 = CN¥219m ÷ (CN¥2.1b - CN¥265m) (Based on the trailing twelve months to December 2020).

Thus, BAIOO Family Interactive has an ROCE of 12%. That's a relatively normal return on capital, and it's around the 15% generated by the Entertainment industry.

View our latest analysis for BAIOO Family Interactive

Above you can see how the current ROCE for BAIOO Family Interactive 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 BAIOO Family Interactive here for free.

So How Is BAIOO Family Interactive's ROCE Trending?

BAIOO Family Interactive's ROCE growth is quite impressive. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 240% in that same time. So it's likely that the business is now reaping the full benefits of its past investments, since the capital employed hasn't changed considerably. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

What We Can Learn From BAIOO Family Interactive's ROCE

To bring it all together, BAIOO Family Interactive has done well to increase the returns it's generating from its capital employed. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

BAIOO Family Interactive does come with some risks though, we found 3 warning signs in our investment analysis, and 1 of those is potentially serious...

While BAIOO Family Interactive 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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