Some Investors May Be Worried About Maxnerva Technology Services' (HKG:1037) Returns On Capital

If we're looking to avoid a business that is in decline, what are the trends that can warn us ahead of time? A business that's potentially in decline often shows two trends, a return on capital employed (ROCE) that's declining, and a base of capital employed that's also declining. Trends like this ultimately mean the business is reducing its investments and also earning less on what it has invested. So after we looked into Maxnerva Technology Services (HKG:1037), the trends above didn't look too great.

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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. Analysts use this formula to calculate it for Maxnerva Technology Services:

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

0.025 = CN¥11m ÷ (CN¥638m - CN¥207m) (Based on the trailing twelve months to June 2025).

Thus, Maxnerva Technology Services has an ROCE of 2.5%. Ultimately, that's a low return and it under-performs the IT industry average of 6.5%.

See 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're interested in investigating Maxnerva Technology Services' past further, check out this free graph covering Maxnerva Technology Services' past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We are a bit worried about the trend of returns on capital at Maxnerva Technology Services. To be more specific, the ROCE was 4.8% five years ago, but since then it has dropped noticeably. Meanwhile, capital employed in the business has stayed roughly the flat over the period. Companies that exhibit these attributes tend to not be shrinking, but they can be mature and facing pressure on their margins from competition. If these trends continue, we wouldn't expect Maxnerva Technology Services to turn into a multi-bagger.

Our Take On Maxnerva Technology Services' ROCE

In summary, it's unfortunate that Maxnerva Technology Services is generating lower returns from the same amount of capital. Despite the concerning underlying trends, the stock has actually gained 39% over the last five years, so it might be that the investors are expecting the trends to reverse. Either way, we aren't huge fans of the current trends and so with that we think you might find better investments elsewhere.

If you'd like to know more about Maxnerva Technology Services, we've spotted 4 warning signs, and 2 of them make us uncomfortable.

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.