We Like These Underlying Return On Capital Trends At Man Yue Technology Holdings (HKG:894)

If you're looking for a multi-bagger, there's a few things to keep an eye out 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. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. With that in mind, we've noticed some promising trends at Man Yue Technology Holdings (HKG:894) so let's look a bit deeper.

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What Is 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. The formula for this calculation on Man Yue Technology Holdings is:

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

0.028 = HK$47m ÷ (HK$3.1b - HK$1.5b) (Based on the trailing twelve months to December 2024).

Thus, Man Yue Technology Holdings has an ROCE of 2.8%. In absolute terms, that's a low return and it also under-performs the Electronic industry average of 6.5%.

View our latest analysis for Man Yue Technology Holdings

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

How Are Returns Trending?

While the ROCE isn't as high as some other companies out there, it's great to see it's on the up. More specifically, while the company has kept capital employed relatively flat over the last five years, the ROCE has climbed 30% in that same time. So our take on this is that the business has increased efficiencies to generate these higher returns, all the while not needing to make any additional investments. The company is doing well in that sense, and it's worth investigating what the management team has planned for long term growth prospects.

On a separate but related note, it's important to know that Man Yue Technology Holdings has a current liabilities to total assets ratio of 48%, which we'd consider pretty high. This effectively means that suppliers (or short-term creditors) are funding a large portion of the business, so just be aware that this can introduce some elements of risk. While it's not necessarily a bad thing, it can be beneficial if this ratio is lower.

The Bottom Line On Man Yue Technology Holdings' ROCE

To bring it all together, Man Yue Technology Holdings has done well to increase the returns it's generating from its capital employed. Since the stock has returned a solid 51% to shareholders over the last five years, it's fair to say investors are beginning to recognize these changes. In light of that, we think it's worth looking further into this stock because if Man Yue Technology Holdings can keep these trends up, it could have a bright future ahead.

On a final note, we found 4 warning signs for Man Yue Technology Holdings (2 are a bit unpleasant) you should be aware of.

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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.