Returns At Meta Media Holdings (HKG:72) Are On The Way Up

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Meta Media Holdings' (HKG:72) returns on capital, so let's have a look.

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. The formula for this calculation on Meta Media Holdings is:

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

0.011 = CN¥4.3m ÷ (CN¥626m - CN¥239m) (Based on the trailing twelve months to June 2021).

Thus, Meta Media Holdings has an ROCE of 1.1%. In absolute terms, that's a low return and it also under-performs the Media industry average of 9.4%.

View our latest analysis for Meta Media Holdings

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

So How Is Meta Media Holdings' ROCE Trending?

Meta Media Holdings has broken into the black (profitability) and we're sure it's a sight for sore eyes. The company now earns 1.1% on its capital, because five years ago it was incurring losses. Interestingly, the capital employed by the business has remained relatively flat, so these higher returns are either from prior investments paying off or increased efficiencies. That being said, while an increase in efficiency is no doubt appealing, it'd be helpful to know if the company does have any investment plans going forward. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

In Conclusion...

To bring it all together, Meta Media Holdings has done well to increase the returns it's generating from its capital employed. And since the stock has dived 81% over the last five years, there may be other factors affecting the company's prospects. In any case, we believe the economic trends of this company are positive and looking into the stock further could prove rewarding.

If you want to know some of the risks facing Meta Media Holdings we've found 2 warning signs (1 is potentially serious!) that you should be aware of before investing here.

While Meta Media Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.