Kanzhun (NASDAQ:BZ) Shareholders Will Want The ROCE Trajectory To Continue

What trends should we look for it we want to identify stocks that can multiply in value over the long term? Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing 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 Kanzhun (NASDAQ:BZ) so let's look a bit deeper.

Return On Capital Employed (ROCE): What is it?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for Kanzhun:

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

0.043 = CN¥470m ÷ (CN¥14b - CN¥2.8b) (Based on the trailing twelve months to December 2021).

So, Kanzhun has an ROCE of 4.3%. In absolute terms, that's a low return but it's around the Interactive Media and Services industry average of 5.1%.

Check out our latest analysis for Kanzhun

In the above chart we have measured Kanzhun's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Kanzhun.

The Trend Of ROCE

We're delighted to see that Kanzhun is reaping rewards from its investments and is now generating some pre-tax profits. The company was generating losses two years ago, but now it's earning 4.3% which is a sight for sore eyes. In addition to that, Kanzhun is employing 1,137% more capital than previously which is expected of a company that's trying to break into profitability. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

One more thing to note, Kanzhun has decreased current liabilities to 20% of total assets over this period, which effectively reduces the amount of funding from suppliers or short-term creditors. This tells us that Kanzhun has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.

In Conclusion...

Long story short, we're delighted to see that Kanzhun's reinvestment activities have paid off and the company is now profitable. Given the stock has declined 37% in the last year, this could be a good investment if the valuation and other metrics are also appealing. With that in mind, we believe the promising trends warrant this stock for further investigation.

One more thing to note, we've identified 2 warning signs with Kanzhun and understanding these should be part of your investment process.

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.

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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.