The Return Trends At Freetech Road Recycling Technology (Holdings) (HKG:6888) Look Promising

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. Speaking of which, we noticed some great changes in Freetech Road Recycling Technology (Holdings)'s (HKG:6888) returns on capital, so let's have a look.

Understanding Return On Capital Employed (ROCE)

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. The formula for this calculation on Freetech Road Recycling Technology (Holdings) is:

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

0.037 = HK$29m ÷ (HK$1.2b - HK$455m) (Based on the trailing twelve months to December 2023).

Therefore, Freetech Road Recycling Technology (Holdings) has an ROCE of 3.7%. In absolute terms, that's a low return and it also under-performs the Infrastructure industry average of 6.0%.

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

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

The Trend Of ROCE

We're delighted to see that Freetech Road Recycling Technology (Holdings) is reaping rewards from its investments and has now broken into profitability. The company now earns 3.7% on its capital, because five years ago it was incurring losses. On top of that, what's interesting is that the amount of capital being employed has remained steady, so the business hasn't needed to put any additional money to work to generate these higher returns. So while we're happy that the business is more efficient, just keep in mind that could mean that going forward the business is lacking areas to invest internally for growth. Because in the end, a business can only get so efficient.

The Key Takeaway

To sum it up, Freetech Road Recycling Technology (Holdings) is collecting higher returns from the same amount of capital, and that's impressive. And since the stock has fallen 54% over the last five years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

Freetech Road Recycling Technology (Holdings) does come with some risks though, we found 2 warning signs in our investment analysis, and 1 of those is significant...

While Freetech Road Recycling Technology (Holdings) isn't earning the highest return, check out this free list of companies that are 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.