Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Typically, we'll want to notice a trend of growing return on capital employed (ROCE) and alongside that, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Although, when we looked at Truly International Holdings (HKG:732), it didn't seem to tick all of these boxes.

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 Truly International Holdings:

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

0.13 = HK$1.6b ÷ (HK$30b - HK$17b) (Based on the trailing twelve months to March 2022).

So, Truly International Holdings has an ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Electronic industry average of 6.6% it's much better.

View our latest analysis for Truly International Holdings

Above you can see how the current ROCE for Truly International Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Truly International Holdings here for free.

How Are Returns Trending?

Over the past five years, Truly International Holdings' ROCE and capital employed have both remained mostly flat. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if Truly International Holdings doesn't end up being a multi-bagger in a few years time.

Another thing to note, Truly International Holdings has a high ratio of current liabilities to total assets of 57%. This can bring about some risks because the company is basically operating with a rather large reliance on its suppliers or other sorts of short-term creditors. Ideally we'd like to see this reduce as that would mean fewer obligations bearing risks.

What We Can Learn From Truly International Holdings' ROCE

We can conclude that in regards to Truly International Holdings' returns on capital employed and the trends, there isn't much change to report on. Since the stock has declined 27% over the last five years, investors may not be too optimistic on this trend improving either. Therefore based on the analysis done in this article, we don't think Truly International Holdings has the makings of a multi-bagger.

Truly International Holdings does have some risks though, and we've spotted 2 warning signs for Truly International Holdings that you might be interested in.

While Truly International Holdings 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.