If we want to find a potential multi-bagger, often there are underlying trends that can provide clues. 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. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. In light of that, when we looked at MINISO Group Holding (NYSE:MNSO) and its ROCE trend, we weren't exactly thrilled.
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 MINISO Group Holding:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.16 = CN¥3.2b ÷ (CN¥26b - CN¥6.3b) (Based on the trailing twelve months to March 2025).
Thus, MINISO Group Holding has an ROCE of 16%. In absolute terms, that's a satisfactory return, but compared to the Multiline Retail industry average of 11% it's much better.
Check out our latest analysis for MINISO Group Holding
Above you can see how the current ROCE for MINISO Group Holding 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 MINISO Group Holding .
So How Is MINISO Group Holding's ROCE Trending?
In terms of MINISO Group Holding's historical ROCE movements, the trend isn't fantastic. Around five years ago the returns on capital were 46%, but since then they've fallen to 16%. 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.
On a side note, MINISO Group Holding has done well to pay down its current liabilities to 24% of total assets. So we could link some of this to the decrease in ROCE. What's more, this can reduce some aspects of risk to the business because now the company's suppliers or short-term creditors are funding less of its operations. Since the business is basically funding more of its operations with it's own money, you could argue this has made the business less efficient at generating ROCE.
What We Can Learn From MINISO Group Holding's ROCE
In summary, despite lower returns in the short term, we're encouraged to see that MINISO Group Holding is reinvesting for growth and has higher sales as a result. And long term investors must be optimistic going forward because the stock has returned a huge 147% to shareholders in the last three years. So should these growth trends continue, we'd be optimistic on the stock going forward.
On a final note, we've found 1 warning sign for MINISO Group Holding that we think you should be aware of.
While MINISO Group Holding isn't earning the highest return, check out this free list of companies that are 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.