FIH Mobile (HKG:2038) Is Experiencing Growth In Returns On Capital

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. With that in mind, we've noticed some promising trends at FIH Mobile (HKG:2038) so let's look a bit deeper.

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Return On Capital Employed (ROCE): What Is It?

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. To calculate this metric for FIH Mobile, this is the formula:

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

0.023 = US$35m ÷ (US$4.1b - US$2.5b) (Based on the trailing twelve months to June 2025).

Thus, FIH Mobile has an ROCE of 2.3%. Ultimately, that's a low return and it under-performs the Electronic industry average of 6.9%.

View our latest analysis for FIH Mobile

Historical performance is a great place to start when researching a stock so above you can see the gauge for FIH Mobile's ROCE against it's prior returns. If you want to delve into the historical earnings , check out these free graphs detailing revenue and cash flow performance of FIH Mobile.

So How Is FIH Mobile's ROCE Trending?

Like most people, we're pleased that FIH Mobile is now generating some pretax earnings. The company was generating losses five years ago, but now it's turned around, earning 2.3% which is no doubt a relief for some early shareholders. Additionally, the business is utilizing 22% less capital than it was five years ago, and taken at face value, that can mean the company needs less funds at work to get a return. FIH Mobile could be selling under-performing assets since the ROCE is improving.

On a separate but related note, it's important to know that FIH Mobile has a current liabilities to total assets ratio of 63%, which we'd consider pretty high. 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.

The Bottom Line On FIH Mobile's ROCE

In a nutshell, we're pleased to see that FIH Mobile has been able to generate higher returns from less capital. And with a respectable 65% awarded to those who held the stock over the last five years, you could argue that these developments are starting to get the attention they deserve. So given the stock has proven it has promising trends, it's worth researching the company further to see if these trends are likely to persist.

Before jumping to any conclusions though, we need to know what value we're getting for the current share price. That's where you can check out our FREE intrinsic value estimation for 2038 that compares the share price and estimated value.

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.

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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.