Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So while ANTA Sports Products (HKG:2020) has a high ROCE right now, lets see what we can decipher from how returns are changing.
We've discovered 1 warning sign about ANTA Sports Products. View them for free.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. To calculate this metric for ANTA Sports Products, this is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.20 = CN¥17b ÷ (CN¥113b - CN¥29b) (Based on the trailing twelve months to December 2024).
Thus, ANTA Sports Products has an ROCE of 20%. That's a fantastic return and not only that, it outpaces the average of 13% earned by companies in a similar industry.
Check out our latest analysis for ANTA Sports Products
Above you can see how the current ROCE for ANTA Sports Products compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for ANTA Sports Products .
What The Trend Of ROCE Can Tell Us
On the surface, the trend of ROCE at ANTA Sports Products doesn't inspire confidence. To be more specific, while the ROCE is still high, it's fallen from 30% where it was five years ago. Although, given both revenue and the amount of assets employed in the business have increased, it could suggest the company is investing in growth, and the extra capital has led to a short-term reduction in ROCE. And if the increased capital generates additional returns, the business, and thus shareholders, will benefit in the long run.
The Bottom Line On ANTA Sports Products' ROCE
Even though returns on capital have fallen in the short term, we find it promising that revenue and capital employed have both increased for ANTA Sports Products. Furthermore the stock has climbed 52% over the last five years, it would appear that investors are upbeat about the future. So while the underlying trends could already be accounted for by investors, we still think this stock is worth looking into further.
If you want to continue researching ANTA Sports Products, you might be interested to know about the 1 warning sign that our analysis has discovered.
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.