Slowing Rates Of Return At Linklogis (HKG:9959) Leave Little Room For Excitement

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at Linklogis (HKG:9959) and its ROCE trend, we weren't exactly thrilled.

What is 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. Analysts use this formula to calculate it for Linklogis:

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

0.032 = CN¥312m ÷ (CN¥12b - CN¥2.0b) (Based on the trailing twelve months to December 2021).

Therefore, Linklogis has an ROCE of 3.2%. In absolute terms, that's a low return and it also under-performs the Software industry average of 7.3%.

Check out our latest analysis for Linklogis

Above you can see how the current ROCE for Linklogis compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Linklogis here for free.

So How Is Linklogis' ROCE Trending?

Over the past , Linklogis' ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Linklogis doesn't end up being a multi-bagger in a few years time.

Our Take On Linklogis' ROCE

We can conclude that in regards to Linklogis' returns on capital employed and the trends, there isn't much change to report on. And in the last year, the stock has given away 56% so the market doesn't look too hopeful on these trends strengthening any time soon. Therefore based on the analysis done in this article, we don't think Linklogis has the makings of a multi-bagger.

If you want to continue researching Linklogis, you might be interested to know about the 1 warning sign that our analysis has discovered.

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and high returns on equity.

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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.