Returns On Capital Are A Standout For Zengame Technology Holding (HKG:2660)

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So when we looked at the ROCE trend of Zengame Technology Holding (HKG:2660) we really liked what we saw.

Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for Zengame Technology Holding, this is the formula:

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

0.40 = CN¥712m ÷ (CN¥2.1b - CN¥263m) (Based on the trailing twelve months to December 2022).

Thus, Zengame Technology Holding has an ROCE of 40%. In absolute terms that's a great return and it's even better than the Entertainment industry average of 2.5%.

View our latest analysis for Zengame Technology Holding

Above you can see how the current ROCE for Zengame Technology Holding compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for Zengame Technology Holding

What The Trend Of ROCE Can Tell Us

The trends we've noticed at Zengame Technology Holding are quite reassuring. The data shows that returns on capital have increased substantially over the last five years to 40%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 663%. So we're very much inspired by what we're seeing at Zengame Technology Holding thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 13%, which basically reduces it's funding from the likes of short-term creditors or suppliers. So shareholders would be pleased that the growth in returns has mostly come from underlying business performance.

The Key Takeaway

All in all, it's terrific to see that Zengame Technology Holding is reaping the rewards from prior investments and is growing its capital base. And a remarkable 388% total return over the last three years tells us that investors are expecting more good things to come in the future. In light of that, we think it's worth looking further into this stock because if Zengame Technology Holding can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing Zengame Technology Holding, we've discovered 2 warning signs that you should be aware of.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.