If you’re looking for a multibagger, there are a few things to keep in mind. Typically, you want to focus on growth trends. return Increase in capital employed (ROCE) and expand accordingly base of capital employed. This basically means that the company has a profitable endeavor that can be continuously reinvested, which is the nature of compound interest.But after a quick look at the numbers, we don’t think so. Geely Auto Holdings (HKG:175) has the potential to become a multibagger in the future, but let’s take a look at why.
About Return on Capital Employed (ROCE)
For those who have never used ROCE before, it measures the “return” (pre-tax profit) that a company generates from the capital employed in its business. This formula for Geely Automobile Holding is:
Return on Capital Employed = Earnings before interest and tax (EBIT) ÷ (Total assets – Current liabilities)
0.02 = 1.8 billion yen ÷ (164 billion yen – 74 billion yen) (Based on the previous 12 months to June 2023).
So, Geely Automobile Holdings’ ROCE is 2.0%. In absolute terms, this is a poor return, 3.0% below the auto industry average.
Check out our latest analysis for Geely Automobile Holdings.
In the graph above, we have measured Geely Automobile Holdings’ previous ROCE against its previous performance, but the future is probably more important. If you’re interested, take a look at our analyst forecasts. free A report on analyst forecasts for a company.
ROCE trends
When it comes to Geely Automobile Holdings’ historical ROCE movement, the trend is not great. Specifically, ROCE has declined from 32% over the past five years. However, given that both revenue and the amount of assets used in the business are increasing, it may suggest that the company is investing in growth, and the additional capital could be This has led to a decrease in ROCE. If these investments are successful, they can bode very well for long-term stock performance.
As a side note, Geely Automobile Holdings’ current liabilities are still quite high at 45% of total assets. This may create a certain degree of risk because we essentially operate with a substantial reliance on suppliers and other short-term creditors. This is not necessarily a bad thing, but a lower ratio can be advantageous.
Geely Automobile Holdings’ ROCE conclusion
We think it’s encouraging to see Geely Automobile Holdings’ growth in both its revenue and capital employed, even if its return on capital has declined in the short term. Also, the stock is down 30% over the past five years, so if other metrics are positive, there may be an opportunity here. So we think this stock is worth considering further, given the trends look promising.
Finally, we discovered that 1 warning sign for Geely Automobile Holding We think you should know.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.