Capital Investment Trends At PC Partner Group (HKG:1263) Look Strong

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over PC Partner Group's (HKG:1263) trend of ROCE, we really liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. The formula for this calculation on PC Partner Group is:

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

0.32 = HK$932m ÷ (HK$6.2b - HK$3.2b) (Based on the trailing twelve months to December 2022).

Therefore, PC Partner Group has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Tech industry average of 3.3%.

See our latest analysis for PC Partner Group

Historical performance is a great place to start when researching a stock so above you can see the gauge for PC Partner Group's ROCE against it's prior returns. If you're interested in investigating PC Partner Group's past further, check out this free graph of past earnings, revenue and cash flow.

How Are Returns Trending?

In terms of PC Partner Group's history of ROCE, it's quite impressive. The company has consistently earned 32% for the last five years, and the capital employed within the business has risen 144% in that time. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If PC Partner Group can keep this up, we'd be very optimistic about its future.

On a side note, PC Partner Group has done well to reduce current liabilities to 52% of total assets over the last five years. Effectively suppliers now fund less of the business, which can lower some elements of risk. We'd like to see this trend continue though because as it stands today, thats still a pretty high level.

What We Can Learn From PC Partner Group's ROCE

PC Partner Group has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And given the stock has only risen 13% over the last five years, we'd suspect the market is beginning to recognize these trends. So because of the trends we're seeing, we'd recommend looking further into this stock to see if it has the makings of a multi-bagger.

PC Partner Group does have some risks though, and we've spotted 2 warning signs for PC Partner Group that you might be interested in.

High returns are a key ingredient to strong performance, so check out our free list ofstocks earning high returns on equity with solid balance sheets.

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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.