Why We Like The Returns At ANE (Cayman) (HKG:9956)

If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding 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. And in light of that, the trends we're seeing at ANE (Cayman)'s (HKG:9956) look very promising so lets take a look.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for ANE (Cayman):

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

0.26 = CN¥925m ÷ (CN¥5.6b - CN¥2.0b) (Based on the trailing twelve months to September 2024).

Thus, ANE (Cayman) has an ROCE of 26%. In absolute terms that's a great return and it's even better than the Transportation industry average of 6.1%.

Check out our latest analysis for ANE (Cayman)

Above you can see how the current ROCE for ANE (Cayman) compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free analyst report for ANE (Cayman) .

What Can We Tell From ANE (Cayman)'s ROCE Trend?

The trends we've noticed at ANE (Cayman) are quite reassuring. Over the last three years, returns on capital employed have risen substantially to 26%. The company is effectively making more money per dollar of capital used, and it's worth noting that the amount of capital has increased too, by 52%. So we're very much inspired by what we're seeing at ANE (Cayman) thanks to its ability to profitably reinvest capital.

On a related note, the company's ratio of current liabilities to total assets has decreased to 36%, which basically reduces it's funding from the likes of short-term creditors or suppliers. Therefore we can rest assured that the growth in ROCE is a result of the business' fundamental improvements, rather than a cooking class featuring this company's books.

Our Take On ANE (Cayman)'s ROCE

To sum it up, ANE (Cayman) has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. And with a respectable 91% awarded to those who held the stock over the last three years, you could argue that these developments are starting to get the attention they deserve. In light of that, we think it's worth looking further into this stock because if ANE (Cayman) can keep these trends up, it could have a bright future ahead.

While ANE (Cayman) looks impressive, no company is worth an infinite price. The intrinsic value infographic for 9956 helps visualize whether it is currently trading for a fair price.

High returns are a key ingredient to strong performance, so check out our free list ofstocks 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.