International Genius (HKG:33) Is Looking To Continue Growing Its Returns On Capital

To find a multi-bagger stock, what are the underlying trends we should look for in a business? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base 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 on that note, International Genius (HKG:33) looks quite promising in regards to its trends of return on capital.

Understanding Return On Capital Employed (ROCE)

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

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

0.014 = HK$2.6m ÷ (HK$240m - HK$52m) (Based on the trailing twelve months to June 2022).

So, International Genius has an ROCE of 1.4%. In absolute terms, that's a low return and it also under-performs the Retail Distributors industry average of 4.9%.

See our latest analysis for International Genius

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're interested in investigating International Genius' past further, check out this free graph of past earnings, revenue and cash flow.

What Can We Tell From International Genius' ROCE Trend?

We're delighted to see that International Genius 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 1.4% on their capital employed. In regards to capital employed, International Genius is using 57% 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.

What We Can Learn From International Genius' ROCE

In a nutshell, we're pleased to see that International Genius has been able to generate higher returns from less capital. And since the stock has dived 80% over the last five years, there may be other factors affecting the company's prospects. Regardless, we think the underlying fundamentals warrant this stock for further investigation.

International Genius does have some risks, we noticed 2 warning signs (and 1 which is potentially serious) we think you should know about.

While International Genius 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.