Boyaa Interactive International (HKG:434) Is Investing Its Capital With Increasing Efficiency

If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing 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 Boyaa Interactive International (HKG:434) we really liked what we saw.

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

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Boyaa Interactive International:

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

0.20 = CN¥392m ÷ (CN¥2.2b - CN¥319m) (Based on the trailing twelve months to June 2024).

Therefore, Boyaa Interactive International has an ROCE of 20%. In absolute terms that's a great return and it's even better than the Entertainment industry average of 11%.

See our latest analysis for Boyaa Interactive International

Historical performance is a great place to start when researching a stock so above you can see the gauge for Boyaa Interactive International's ROCE against it's prior returns. If you're interested in investigating Boyaa Interactive International's past further, check out this free graph covering Boyaa Interactive International's past earnings, revenue and cash flow.

How Are Returns Trending?

Boyaa Interactive International is showing promise given that its ROCE is trending up and to the right. The figures show that over the last five years, ROCE has grown 342% whilst employing roughly the same amount of capital. Basically the business is generating higher returns from the same amount of capital and that is proof that there are improvements in the company's efficiencies. On that front, things are looking good so it's worth exploring what management has said about growth plans going forward.

The Key Takeaway

In summary, we're delighted to see that Boyaa Interactive International has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Since the stock has returned a solid 70% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

On a separate note, we've found 1 warning sign for Boyaa Interactive International you'll probably want to know about.

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.