Full Truck Alliance (NYSE:YMM) Is Looking To Continue Growing Its Returns On Capital

There are a few key trends to look for if we want to identify the next multi-bagger. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount 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. So when we looked at Full Truck Alliance (NYSE:YMM) and its trend of ROCE, we really liked what we saw.

What Is 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. Analysts use this formula to calculate it for Full Truck Alliance:

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

0.04 = CN¥1.4b ÷ (CN¥40b - CN¥3.3b) (Based on the trailing twelve months to June 2024).

Therefore, Full Truck Alliance has an ROCE of 4.0%. In absolute terms, that's a low return and it also under-performs the Transportation industry average of 7.7%.

See our latest analysis for Full Truck Alliance

In the above chart we have measured Full Truck Alliance's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Full Truck Alliance for free.

What Can We Tell From Full Truck Alliance's ROCE Trend?

We're delighted to see that Full Truck Alliance is reaping rewards from its investments and is now generating some pre-tax profits. About four years ago the company was generating losses but things have turned around because it's now earning 4.0% on its capital. And unsurprisingly, like most companies trying to break into the black, Full Truck Alliance is utilizing 153% more capital than it was four years ago. This can tell us that the company has plenty of reinvestment opportunities that are able to generate higher returns.

The Bottom Line On Full Truck Alliance's ROCE

To the delight of most shareholders, Full Truck Alliance has now broken into profitability. And since the stock has fallen 60% over the last three years, there might be an opportunity here. That being the case, research into the company's current valuation metrics and future prospects seems fitting.

If you want to continue researching Full Truck Alliance, you might be interested to know about the 1 warning sign that our analysis has discovered.

While Full Truck Alliance may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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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.