Returns At Freetech Road Recycling Technology (Holdings) (HKG:6888) Are On The Way Up

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. With that in mind, we've noticed some promising trends at Freetech Road Recycling Technology (Holdings) (HKG:6888) so let's look a bit deeper.

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

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. To calculate this metric for Freetech Road Recycling Technology (Holdings), this is the formula:

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

0.0047 = HK$3.5m ÷ (HK$1.1b - HK$355m) (Based on the trailing twelve months to June 2023).

Thus, Freetech Road Recycling Technology (Holdings) has an ROCE of 0.5%. Ultimately, that's a low return and it under-performs the Infrastructure industry average of 7.2%.

Check out our latest analysis for Freetech Road Recycling Technology (Holdings)

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 Freetech Road Recycling Technology (Holdings) has performed in the past in other metrics, you can view this free graph of past earnings, revenue and cash flow.

What The Trend Of ROCE Can Tell Us

We're delighted to see that Freetech Road Recycling Technology (Holdings) is reaping rewards from its investments and has now broken into profitability. While the business was unprofitable in the past, it's now turned things around and is earning 0.5% on its capital. While returns have increased, the amount of capital employed by Freetech Road Recycling Technology (Holdings) has remained flat over the period. With no noticeable increase in capital employed, it's worth knowing what the company plans on doing going forward in regards to reinvesting and growing the business. After all, a company can only become a long term multi-bagger if it continually reinvests in itself at high rates of return.

In Conclusion...

In summary, we're delighted to see that Freetech Road Recycling Technology (Holdings) has been able to increase efficiencies and earn higher rates of return on the same amount of capital. Astute investors may have an opportunity here because the stock has declined 47% in the last five years. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you'd like to know more about Freetech Road Recycling Technology (Holdings), we've spotted 2 warning signs, and 1 of them is a bit concerning.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.