Returns On Capital Are A Standout For IGG (HKG:799)

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, the ROCE of IGG (HKG:799) looks great, so lets see what the trend can tell us.

Understanding Return On Capital Employed (ROCE)

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. Analysts use this formula to calculate it for IGG:

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

0.34 = US$174m ÷ (US$630m - US$125m) (Based on the trailing twelve months to December 2020).

So, IGG has an ROCE of 34%. In absolute terms that's a great return and it's even better than the Entertainment industry average of 15%.

View our latest analysis for IGG

In the above chart we have measured IGG's prior ROCE against its prior performance, but the future is arguably more important. 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 IGG's ROCE Trend?

Investors would be pleased with what's happening at IGG. The numbers show that in the last five years, the returns generated on capital employed have grown considerably to 34%. Basically the business is earning more per dollar of capital invested and in addition to that, 164% more capital is being employed now too. So we're very much inspired by what we're seeing at IGG thanks to its ability to profitably reinvest capital.

The Key Takeaway

All in all, it's terrific to see that IGG is reaping the rewards from prior investments and is growing its capital base. And a remarkable 266% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

If you want to know some of the risks facing IGG we've found 4 warning signs (2 are concerning!) that you should be aware of before investing here.

IGG is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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