Returns At BAIOO Family Interactive (HKG:2100) Are On The Way Up

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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. Speaking of which, we noticed some great changes in BAIOO Family Interactive's (HKG:2100) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for BAIOO Family Interactive:

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

0.021 = CN¥36m ÷ (CN¥2.0b - CN¥248m) (Based on the trailing twelve months to December 2021).

Therefore, BAIOO Family Interactive has an ROCE of 2.1%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 8.3%.

See our latest analysis for BAIOO Family Interactive

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

What The Trend Of ROCE Can Tell Us

Even though ROCE is still low in absolute terms, it's good to see it's heading in the right direction. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 1,937% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

Our Take On 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. Since the stock has only returned 7.6% to shareholders over the last five years, the promising fundamentals may not be recognized yet by investors. So exploring more about this stock could uncover a good opportunity, if the valuation and other metrics stack up.

One more thing to note, we've identified 4 warning signs with BAIOO Family Interactive and understanding them should be part of your investment process.

While BAIOO Family Interactive 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.