Maxnerva Technology Services' (HKG:1037) Returns On Capital Are Heading Higher

What trends should we look for it we want to identify stocks that can multiply in value over the long term? 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. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So on that note, Maxnerva Technology Services (HKG:1037) looks quite promising in regards to its trends of return on capital.

What is Return On Capital Employed (ROCE)?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. To calculate this metric for Maxnerva Technology Services, this is the formula:

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

0.081 = CN¥32m ÷ (CN¥574m - CN¥180m) (Based on the trailing twelve months to June 2021).

Therefore, Maxnerva Technology Services has an ROCE of 8.1%. On its own, that's a low figure but it's around the 7.2% average generated by the IT industry.

View our latest analysis for Maxnerva Technology Services

Historical performance is a great place to start when researching a stock so above you can see the gauge for Maxnerva Technology Services' ROCE against it's prior returns. If you'd like to look at how Maxnerva Technology Services has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

So How Is Maxnerva Technology Services' ROCE Trending?

The fact that Maxnerva Technology Services is now generating some pre-tax profits from its prior investments is very encouraging. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 8.1% on its capital. Not only that, but the company is utilizing 50% more capital than before, but that's to be expected from a company trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Key Takeaway

To the delight of most shareholders, Maxnerva Technology Services has now broken into profitability. Although the company may be facing some issues elsewhere since the stock has plunged 86% in the last five years. Still, it's worth doing some further research to see if the trends will continue into the future.

Since virtually every company faces some risks, it's worth knowing what they are, and we've spotted 4 warning signs for Maxnerva Technology Services (of which 1 can't be ignored!) that you should know about.

While Maxnerva Technology Services 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.