GCL Technology Holdings (HKG:3800) Is Looking To Continue Growing Its Returns On Capital

If you're looking for a multi-bagger, there's a few things to keep an eye out for. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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. Speaking of which, we noticed some great changes in GCL Technology Holdings' (HKG:3800) returns on capital, so let's have a look.

Return On Capital Employed (ROCE): What is it?

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. Analysts use this formula to calculate it for GCL Technology Holdings:

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

0.10 = CN¥4.1b ÷ (CN¥64b - CN¥24b) (Based on the trailing twelve months to December 2021).

Therefore, GCL Technology Holdings has an ROCE of 10%. That's a relatively normal return on capital, and it's around the 11% generated by the Semiconductor industry.

See our latest analysis for GCL Technology Holdings

In the above chart we have measured GCL Technology Holdings' prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for GCL Technology Holdings.

What Can We Tell From GCL Technology Holdings' ROCE Trend?

You'd find it hard not to be impressed with the ROCE trend at GCL Technology Holdings. The figures show that over the last five years, returns on capital have grown by 22%. That's a very favorable trend because this means that the company is earning more per dollar of capital that's being employed. Interestingly, the business may be becoming more efficient because it's applying 24% less capital than it was five years ago. If this trend continues, the business might be getting more efficient but it's shrinking in terms of total assets.

The Bottom Line On GCL Technology Holdings' ROCE

In a nutshell, we're pleased to see that GCL Technology Holdings has been able to generate higher returns from less capital. Since the stock has returned a staggering 289% to shareholders over the last five years, it looks like investors are recognizing these changes. In light of that, we think it's worth looking further into this stock because if GCL Technology Holdings can keep these trends up, it could have a bright future ahead.

If you'd like to know about the risks facing GCL Technology Holdings, we've discovered 1 warning sign that you should be aware of.

While GCL Technology 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.