Zengame Technology Holding (HKG:2660) Looks To Prolong Its Impressive Returns

What are the early trends we should look for to identify a stock that could multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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. With that in mind, the ROCE of Zengame Technology Holding (HKG:2660) looks attractive right now, so lets see what the trend of returns can tell us.

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. 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)

0.26 = CN¥210m ÷ (CN¥856m - CN¥58m) (Based on the trailing twelve months to December 2020).

So, Zengame Technology Holding has an ROCE of 26%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.

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.

What Can We Tell From Zengame Technology Holding's ROCE Trend?

We'd be pretty happy with returns on capital like Zengame Technology Holding. Over the past four years, ROCE has remained relatively flat at around 26% and the business has deployed 349% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Zengame Technology Holding can keep this up, we'd be very optimistic about its future.

On a side note, Zengame Technology Holding has done well to reduce current liabilities to 6.7% of total assets over the last four years. Effectively suppliers now fund less of the business, which can lower some elements of risk.

Our Take On Zengame Technology Holding's ROCE

Zengame Technology Holding has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And since the stock has risen strongly over the last year, it appears the market might expect this trend to continue. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

On a separate note, we've found 2 warning signs for Zengame Technology Holding you'll probably want to know about.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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