Anacle Systems (HKG:8353) Is Experiencing Growth In Returns On Capital

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. Speaking of which, we noticed some great changes in Anacle Systems' (HKG:8353) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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 Anacle Systems:

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

0.058 = S$1.1m ÷ (S$24m - S$4.5m) (Based on the trailing twelve months to November 2024).

Therefore, Anacle Systems has an ROCE of 5.8%. On its own that's a low return on capital but it's in line with the industry's average returns of 5.8%.

View our latest analysis for Anacle Systems

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

How Are Returns Trending?

Anacle Systems has recently broken into profitability so their prior investments seem to be paying off. About five years ago the company was generating losses but things have turned around because it's now earning 5.8% on its capital. Not only that, but the company is utilizing 65% more capital than before, but that's to be expected from a company trying to break into profitability. We like this trend, because it tells us the company has profitable reinvestment opportunities available to it, and if it continues going forward that can lead to a multi-bagger performance.

In Conclusion...

To the delight of most shareholders, Anacle Systems has now broken into profitability. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. Therefore, we think it would be worth your time to check if these trends are going to continue.

If you want to know some of the risks facing Anacle Systems we've found 4 warning signs (1 doesn't sit too well with us!) that you should be aware of before investing here.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.