Returns At Global Digital Creations Holdings (HKG:8271) Are On The Way Up

There are a few key trends to look for if we want to identify the next multi-bagger. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount 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. So when we looked at Global Digital Creations Holdings (HKG:8271) and its trend of ROCE, we really liked what we saw.

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. The formula for this calculation on Global Digital Creations Holdings is:

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

0.00093 = HK$325k ÷ (HK$632m - HK$282m) (Based on the trailing twelve months to March 2023).

So, Global Digital Creations Holdings has an ROCE of 0.09%. Ultimately, that's a low return and it under-performs the Entertainment industry average of 2.5%.

View our latest analysis for Global Digital Creations Holdings

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

How Are Returns Trending?

We're delighted to see that Global Digital Creations Holdings is reaping rewards from its investments and has now broken into profitability. Historically the company was generating losses but as we can see from the latest figures referenced above, they're now earning 0.09% on their capital employed. In regards to capital employed, Global Digital Creations Holdings is using 62% less capital than it was five years ago, which on the surface, can indicate that the business has become more efficient at generating these returns. This could potentially mean that the company is selling some of its assets.

For the record though, there was a noticeable increase in the company's current liabilities over the period, so we would attribute some of the ROCE growth to that. Effectively this means that suppliers or short-term creditors are now funding 45% of the business, which is more than it was five years ago. And with current liabilities at those levels, that's pretty high.

The Bottom Line On Global Digital Creations Holdings' ROCE

In the end, Global Digital Creations Holdings has proven it's capital allocation skills are good with those higher returns from less amount of capital. Astute investors may have an opportunity here because the stock has declined 44% in the last five years. So researching this company further and determining whether or not these trends will continue seems justified.

On a final note, we found 4 warning signs for Global Digital Creations Holdings (1 is concerning) you should be aware of.

While Global Digital Creations Holdings may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.