If you're looking for a multi-bagger, there's a few things to keep an eye out for. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Speaking of which, we noticed some great changes in Hyfusin Group Holdings' (HKG:8512) returns on capital, so let's have a look.
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. To calculate this metric for Hyfusin Group Holdings, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.24 = HK$140m ÷ (HK$767m - HK$186m) (Based on the trailing twelve months to June 2024).
So, Hyfusin Group Holdings has an ROCE of 24%. That's a fantastic return and not only that, it outpaces the average of 11% earned by companies in a similar industry.
Check out our latest analysis for Hyfusin Group Holdings
Historical performance is a great place to start when researching a stock so above you can see the gauge for Hyfusin Group Holdings' ROCE against it's prior returns. If you're interested in investigating Hyfusin Group Holdings' past further, check out this free graph covering Hyfusin Group Holdings' past earnings, revenue and cash flow.
What Can We Tell From Hyfusin Group Holdings' ROCE Trend?
Investors would be pleased with what's happening at Hyfusin Group Holdings. The data shows that returns on capital have increased substantially over the last five years to 24%. The amount of capital employed has increased too, by 407%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.
In another part of our analysis, we noticed that the company's ratio of current liabilities to total assets decreased to 24%, which broadly means the business is relying less on its suppliers or short-term creditors to fund its operations. This tells us that Hyfusin Group Holdings has grown its returns without a reliance on increasing their current liabilities, which we're very happy with.
What We Can Learn From Hyfusin Group Holdings' ROCE
To sum it up, Hyfusin Group Holdings has proven it can reinvest in the business and generate higher returns on that capital employed, which is terrific. Since the stock has returned a staggering 574% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.
On a separate note, we've found 1 warning sign for Hyfusin Group Holdings you'll probably want to know about.
If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning 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.