FingerTango's (HKG:6860) Returns On Capital Tell Us There Is Reason To Feel Uneasy

To avoid investing in a business that's in decline, there's a few financial metrics that can provide early indications of aging. Typically, we'll see the trend of both return on capital employed (ROCE) declining and this usually coincides with a decreasing amount of capital employed. This combination can tell you that not only is the company investing less, it's earning less on what it does invest. And from a first read, things don't look too good at FingerTango (HKG:6860), so let's see why.

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What Is Return On Capital Employed (ROCE)?

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. To calculate this metric for FingerTango, this is the formula:

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

0.015 = CN¥12m ÷ (CN¥1.0b - CN¥186m) (Based on the trailing twelve months to June 2025).

So, FingerTango has an ROCE of 1.5%. In absolute terms, that's a low return and it also under-performs the Entertainment industry average of 8.7%.

See our latest analysis for FingerTango

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how FingerTango has performed in the past in other metrics, you can view this free graph of FingerTango's past earnings, revenue and cash flow.

The Trend Of ROCE

The trend of returns that FingerTango is generating are raising some concerns. To be more specific, today's ROCE was 3.5% five years ago but has since fallen to 1.5%. What's equally concerning is that the amount of capital deployed in the business has shrunk by 43% over that same period. The fact that both are shrinking is an indication that the business is going through some tough times. Typically businesses that exhibit these characteristics aren't the ones that tend to multiply over the long term, because statistically speaking, they've already gone through the growth phase of their life cycle.

Our Take On FingerTango's ROCE

In summary, it's unfortunate that FingerTango is shrinking its capital base and also generating lower returns. It should come as no surprise then that the stock has fallen 66% over the last five years, so it looks like investors are recognizing these changes. With underlying trends that aren't great in these areas, we'd consider looking elsewhere.

On a final note, we've found 1 warning sign for FingerTango that we think you should be aware of.

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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.