Returns On Capital At Pangaea Connectivity Technology (HKG:1473) Paint A Concerning Picture

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Having said that, while the ROCE is currently high for Pangaea Connectivity Technology (HKG:1473), we aren't jumping out of our chairs because returns are decreasing.

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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. Analysts use this formula to calculate it for Pangaea Connectivity Technology:

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

0.20 = HK$58m ÷ (HK$798m - HK$511m) (Based on the trailing twelve months to September 2025).

Therefore, Pangaea Connectivity Technology has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 7.8% earned by companies in a similar industry.

View our latest analysis for Pangaea Connectivity Technology

While the past is not representative of the future, it can be helpful to know how a company has performed historically, which is why we have this chart above. If you'd like to look at how Pangaea Connectivity Technology has performed in the past in other metrics, you can view this free graph of Pangaea Connectivity Technology's past earnings, revenue and cash flow.

What Does the ROCE Trend For Pangaea Connectivity Technology Tell Us?

Unfortunately, the trend isn't great with ROCE falling from 33% five years ago, while capital employed has grown 45%. Usually this isn't ideal, but given Pangaea Connectivity Technology conducted a capital raising before their most recent earnings announcement, that would've likely contributed, at least partially, to the increased capital employed figure. The funds raised likely haven't been put to work yet so it's worth watching what happens in the future with Pangaea Connectivity Technology's earnings and if they change as a result from the capital raise.

On a side note, Pangaea Connectivity Technology's current liabilities are still rather high at 64% of total assets. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

Our Take On Pangaea Connectivity Technology's ROCE

Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for Pangaea Connectivity Technology. Furthermore the stock has climbed 94% over the last three years, it would appear that investors are upbeat about the future. So while investors seem to be recognizing these promising trends, we would look further into this stock to make sure the other metrics justify the positive view.

Pangaea Connectivity Technology does have some risks, we noticed 4 warning signs (and 1 which is potentially serious) we think you should know about.

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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.